Auto Trader hit by advertising concerns

Auto Trader hit a four-month low on Friday on fears that a glut of used cars will drive its smaller advertisers out of business.

Credit Suisse turned negative on Auto Trader, which dropped 4.7 per cent to 382p. Profitability among dealerships is set to suffer from sterling’s depreciation and an influx of nearly-new used cars, caused by a falling off of the leasing cycle, the broker forecast.

While Auto Trader’s advertising business will benefit in the short term from higher used-car volumes, the growing supply will squeeze retailer profits even further and could push as many as a fifth of independent dealerships out of business, it said.

The impact to Auto Trader’s earnings from a shakeout of the industry’s weakest retailers “may not be very big”, but “leading online classifieds players enjoy high multiples in part due to their visibility, consistent returns and upgrade cycles”, said Credit Suisse. “Even relatively minor downgrades could cause meaningful de-ratings.”

Gains in the wider market were modest as rising bond yields weighed on defensive sectors such as utilities and property. The FTSE 100 ended 0.4 per cent higher, up 28.12 points to 7,343.08.

BT led the blue-chip gainers, up 3.7 per cent to 342.5p, after reaching a deal with regulator Ofcom to legally separate its Openreach network division.

BP added 3.7 per cent to 342.5p after the London Evening Standard reported recent market speculation about interest from ExxonMobil. Neither company would comment on the gossip, which had been doing the rounds among London traders since late February, while industry experts suggested that transatlantic oil megamergers looked more plausible later in Donald Trump’s presidency than as an immediate prospect.

Old Mutual edged 0.5 per cent lower at 223.8p, its four-way break-up plan having been the subject of persistent speculation in recent weeks. The latest theory doing the rounds involved potential interest from a UK-listed insurance industry peer such as Prudential, off 0.4 per cent to £16.44.

Laird, the electronic components maker, soared 12.5 per cent to 187.3p on the back of a Berenberg upgrade to “buy”.

“With debt concerns now behind Laird and trading improving, we could envisage a scenario where the company receives more corporate and private equity interest,” Berenberg said. “With similar businesses being acquired for large premiums and multiples, we feel risk is to the upside from a potential takeover.”

Aldermore faded 7.4 per cent to 222.3p after AnaCap Funds, the challenger bank’s biggest shareholder, sold 51.7m shares at 220p apiece to reduce its stake to 25 per cent.