The CAR Group Ltd (ASX: CAR) share price is up more than 3% after announcing its plans to exit its tyres business.
It owns vehicle digital marketplaces Carsales (Australia), Encar (South Korea), Trader Interactive (the US) and Chileautos (Chile). It is also the majority shareholder of Webmotors in Brazil.
Exit of Tyres business
After a strategic review, CAR Group has decided to exit its Australian tyres business unit which includes both the wholesale division tyreconnect and the e-commerce platform tyresales.com.au.
The company’s decision follows “continued difficulty in achieving sustainable profitability in what is a highly competitive tyre retail and wholesale market.”
CAR Group has reached an agreement to sell “certain assets” of tyreconnect to a third party with the sale expected to be completed at the end of February. The ASX tech share said the transaction “is not material” to CAR Group. The tyresales.com.au platform will be closed effective 14 January 2025.
How will this affect the ASX tech share’s financials?
The company will announce its FY25 first-half result on 10 February 2025. The result will include a presentation of financial performance on a pro forma/underlying basis, which excludes the Tyres business unit to reflect the performance of the business.
In the first half of FY24, the Tyres business made $28 million of revenue, $0 EBITDA and $0 net profit after tax (NPAT). In the second half of FY24, CAR Group’s tyre segment made $29 million of revenue, $0 of EBITDA and $0 of net profit. Overall, CAR Group contributed $57 million of revenue, contributing 5.2% of revenue.
So, it contributed to revenue in FY24 but not a major one.
Due to the fact that it made $0 of EBITDA in FY24, its underlying EBITDA margin should increase. With the tyres segment, its EBITDA margin was 52.9% in FY24 and 55.8% without it in FY24.
On a reported statutory basis, CAR Group expects to incur costs related to redundancy costs and asset writedowns. The company said these costs “will not be material to CAR Group and will be treated as abnormal costs”, which will be excluded from the pro forma and adjusted figures in the upcoming result.
Final thoughts on the CAR Group share price
Excluding the tyres business, CAR Group expects to deliver “good growth” in its underlying revenue, EBITDA and net profit on a constant currency basis. It also expects to see a similar EBITDA margin in FY25 as FY24.
The CAR Group share price is up 20% in a year and approximately 75% in two years. I don’t think it’s an opportunity today like it was a couple of years ago, with the price/earnings ratio (p/e ratio) now much higher. I’m not calling it a great buy today, but it could be one to watch.
