Inter Cars CAR.WA
September 08, 2023 - 3:49pm EST by
spike945
2023 2024
Price: 587.00 EPS 63 69
Shares Out. (in M): 14 P/E 9 8.5
Market Cap (in $M): 8,300 P/FCF 0 0
Net Debt (in $M): 2,430 EBIT 0 0
TEV (in $M): 10,730 TEV/EBIT 0 0

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  • Poland
  • Aftermarket Auto
  • Distributor

Description

tl;dr: cheap Polish compounder at sub 10x EPS, significant insider ownership, earnings currently depressed.

Inter Cars is the market leader in auto parts distribution in Central and Eastern Europe (CEE), and #2 in Europe behind LKQ. The company has been a steady performer for 20 years since its IPO in 2004, compounding EPS at 24% over the last 10 years in PLN, or 20% in US$ terms, and is currently growing sales at over 20% per annum. It’s cheap (9.8x TTM P/E), has high insider ownership, is run by the founder’s son and has a runway for continued growth. 

If you’re thinking that this closely rhymes with my writeup on Auto Partner (APR WA) from a year ago then you’re right, though the businesses differ slightly. There have been several writeups/blog posts on APR, but I can’t find any on CAR. Both stocks (along with a lot of Polish names) have done well but InterCars is still currently valued at just under 10x P/E and 7.8x EBITDA (TTM). Even allowing a discount for CEE exposure I think that’s too cheap for such a good business. The last couple of quarters have seen margins compress slightly, which some sell side have taken as an indicator of future margins. I think they’re wrong, it’s mostly due to high cost inventory from late 2022 (FX/shipping cost related), should have largely passed through now, and that margins will revert.

 

The Business

InterCars is the leading importer and distributor of automotive spare parts for passenger cars and commercial vehicles in CEE. InterCars has a wider product offering than competitors – including spares for commercial vehicles, marine, motorbikes, tires, selling Isuzu and Ford vehicles, manufacturing semi trailers, remanufacturing parts, offering repair services to fleet chains. 



The backbone of the business is logistics, optimizing parts flow from over 500 manufacturers to local end users (garages, shops, individual customers). The company has a central warehouse near Warsaw plus many regional ones, from which it supplies over 500 distribution centers. From here they service around 21 thousand registered end customers (service garages) with typically 4 daily deliveries of whatever parts are required for repairs. In addition, there is an association of Q-Service Castrol garages. Inter Cars also offers direct online parts ordering and service referral through their Motointegrator.pl site. 

Unlike Auto Partner, Inter Cars creates branches on a sort of franchise system, called “affiliate branches”. These are independent businesses, responsible for their own staffing, facility and buildings who provide the local distribution service. Inter Cars shares some costs, provide and manage the inventory and IT systems, and split the gross profits 50/50 (affiliate share shows up as “Costs of distribution service” on the income statement). Inter Cars gets capital light growth as they fold in smaller independent players, who see reduced investment in inventory, wider selection, faster delivery, benefit of a national brand, better IT systems and thus increased sales. It’s an efficient system that has allowed Inter Cars to grow rapidly.

Krzysiek Pietrzak.. became our franchisee in Warsaw. He wasn't too sure about the idea at first. He said: - My business is doing well, why should I change anything. And I said to him: - Krzysiu, first of all, you will free the money that you currently have frozen on the shelves, because from now on the warehouse will be fully financed by Inter Cars, and the goods will move automatically. You will not have to wonder what you are missing and where to get the funds to expand the assortment, we will provide you with the entire system. You will increase your turnover, and you will sleep soundly. And Krzysiek decided that it was worth getting into it.

Another network that Inter Cars has created and leveraged is the Q-Service Castrol network. This loyalty network is similar to (but larger than) Auto Partner’s “MaXserwis” network of service/repair shops. Inter Cars offers member service garages quick delivery of the widest range of high-quality parts and purchase discounts, a recognizable brand, complemented with specialist vehicle-repair and maintenance support and training, as well as with solutions, equipment and software for the operation of garages and work stands.