Exane BNP Paribas downgraded Auto Trader to 'neutral' from 'outperform' on Thursday, cutting the price target by 14% to 370p as it takes a more cautious view on the group's cyclical prospects.
It said the shares have performed strongly since the IPO, driven by strong execution and healthy earnings revisions. However, the stock has de-rated in the last 18 months.
Exane said it was turning more cautious on the UK used car market, with negative implications for Auto Trader. It now forecasts a tough used car market backdrop for 2018/19, driven by diesel uncertainty, which it reckons will weigh on the company's top-line growth in FY19.
Breaking with the historical correlation with lagged new car supply used car transactions have declined since the second quarter 2017 and Exane's tracking suggests that this challenging backdrop is now dragging on Auto Trader stock, which is a key growth level for the company.
Exane cut its group FY19/20 organic revenue growth estimate from 7%/7% to 4%/5% and said it expects the company to strike a more cautious tone on the outlook in June.
“Despite challenges, Auto Trader is well placed to prosper longer term. We see little risk of major reinvestment needs or material web traffic share loss. However, we fail to see catalysts for outperformance nearer term and downgrade to neutral.”
At 1610 BST, the shares were down 5% to 339.00p.