Stock pick: Centennial Asset Management

iCar Asia (ASX: ICQ) operates the leading automotive portals in Malaysia, Thailand and Indonesia. The portals allow the public and car dealers to undertake online transactions in both used and new cars. The company generates its income from dealer leads, transactions, classified and display advertising and events. ICQ’s business model is similar to Carsales (ASX: CAR) in Australia which is a more mature market for online automotive portals. 

ICQ has a market capitalisation of approximately AUD 105 million and has net cash of about AUD 3 million. The company is still burning cash and has been hit hard by the impact of COVID-19, resulting in its share price falling from around 43 cents in February this year to a low of 13 cents in late March. Since then the stock price has recovered to 25 cents. Importantly, the cash burn is now minor and, on current projections, the company does not need to raise fresh equity to navigate its way through the crisis.

In its formative years the company struggled to attract dealers to its automotive portals, resulting in a large cash burn. In the last two years, under the leadership of managing director Hamish Stone and chairman Georg Chmiel, the company has rapidly gained the attention of both dealers and the general car buying public in all three countries. Today Malaysia and Thailand both generate positive earnings, while the more nascent Indonesia is showing substantial progress. The company has been growing its revenue by approximately 30% per annum and currently enjoys an annualised revenue run rate of AUD 20 million. This has the ability to grow ten-fold given the combined population of more than 350 million in the three jurisdictions it operates. As the acceptance of its products grow and its number one market share is consolidated the company will enjoy significant market expansion. In Australia CAR has revenues of over  AUD 150 million and enjoys Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) of more than 50%. While this kind of achievement is a long way into the distance it does give a sense of what is possible for ICQ. 

In addition, ICQ counts CAR as one of its major shareholders and therefore it has strategic value. We believe ICQ will recover as the impact of COVID-19 subsides over the next 18 months and it could easily double in price to 50 cents within that period.

This information has been prepared and provided by Centennial Asset Management. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 22 May 2020 and is subject to change.