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Investing.com - UBS downgraded AP Eagers Ltd (ASX:APE) from Neutral to Sell while raising its price target to AUD16.50 from AUD14.80.
The downgrade comes as UBS analyst Tim Piper cited concerns about high acquisition competition and multiples in the consolidating Canadian automotive dealer market, where acquisition goodwill multiples vary widely.
For desirable OEM brands and geographic locations, UBS estimates total P/E multiples of approximately 12-20x once net assets and property are included, with minimal organic growth opportunities driving increased M&A activity among dealers focused on inorganic expansion.
UBS projects only "low-mid single digit EPS accretion" for private dealer acquisition scenarios, even while maintaining conservative balance sheet gearing below 2x, and notes that listed auto dealers in Canada and the US trade at significant P/E discounts compared to AP Eagers’ current valuation.
The firm views a traditional franchised dealer roll-up strategy as "underwhelming," though suggests that leveraging an acquired network into new distribution models or OEM partnerships might receive a more positive market reception.
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