COMPANY OVERVIEW: Founded in 1920 and floating on the Casablanca stock market since 1941, Auto Hall is one of Morocco’s leading players in the importation and distribution of automotive equipment. The group operates in five main segments: 1) passenger cars, where it distributes Ford and Mitsubishi and, in some regions, operates as an agent retailer of Fiat cars; 2) light commercial vehicles, where it distributes Ford, Mitsubishi and Fiat cars with an estimated market share of 26%; 3) industrial vehicles, where it is the exclusive seller of Fuso and Ford trucks; 4) agricultural equipment, where it distributes New Holland machines with an estimated national market share of 30.5%; and 5) industrial and construction equipment, where it enjoys a prestigious portfolio of distributed brands, such as Case, Ammann and Cummins. Auto Hall owns an extensive distribution network and has ambitious plans to enlarge it, with a goal of 100 operational sites by the end of 2020, versus 32 in 2013. The group’s main shareholders are Groupe Amana (51.3%), CIMR (13.3%) and Hakam Finance (8.9%), with a free float on the remaining 26.7%.
In the first half of 2013, Auto Hall’s revenues increased by 9% thanks to a strong commercial performance, with market share rising in all segments. This came despite decreases in sales of passenger cars (-6%) and of industrial vehicles (-15% by the end of August) on the national market. Such a strong commercial achievement, combined with the headwinds from a decline in the value of the yen, led to a 33% increase in earnings before interest and taxes (EBIT). Finally, net income in that period increased by only 9%, hindered by a loss of Dh47.3m (€4.2m), versus a gain of Dh200,000 (€17,760) on H1 2012 as the company enjoyed a favourable impact of exchange rate movements over the first half of 2012.
STRATEGIC DEVELOPMENT: For 2013, Auto Hall’s revenues should increase by 8.3%, thanks to the improvement of its market share in all of the segments in which it operates, and despite a drop in sales of passenger cars (forecast at -6.5%) and industrial vehicles (-10%) in the national market. The company’s EBIT and net income should strongly increase, by 33% and 24% respectively, reaching Dh417m (€37m) and Dh249m (€22.1m) thanks to improved gross margins driven by the decline in the ¥:Dh exchange rate. A lower yen means the company can import its Japanese automotive equipment at a lower cost.
For 2014, car sales should regain a bullish trend (+8% for passenger cars and light commercial vehicles). One reason is the Auto Expo show that took place in Casablanca in May. Furthermore, current market conditions are favourable to the development of Auto Hall’s market share thanks to its extensive distribution network, which performs better than agent retailers, leading to an increase of revenues by 11.9%. As a result, EBIT and net income should show a strong increase, by 17% and 22% respectively.
We have a “buy” recommendation on Auto Hall, with a target price of Dh99 (€8.79) a share. This company is our preferred stock in the automotive distribution sector in Morocco thanks to the resilience of its commercial performance in 2013 (following a strong increase in its market shares in all of its business segments despite challenging market conditions) and to the expected recovery of car sales in 2014 thanks in part to the Auto Expo show. The Moroccan market also has a low rate of ownership: nearly 60 passenger cars and light commercial vehicles per 1000 people – eight times less than in Europe. This means that the growth potential is still huge for Auto Hall.
Our positive view of the group’s stock is also justified by the expected recovery of its investments, especially in the construction sector, which should help its industrial vehicles segment, and by its aggressive plans to expand its distribution network. Such development should enable Auto Hall to capture market growth outside of Casablanca and Rabat, where other importers are generally present through agent retailers whose cars perform less well commercially.
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