Cameron McIntyre, the chief executive of Carsales, says there are plenty of similarities between the car markets of Australia and Brazil, where the $8.7 billion ASX group has just increased its stake in local online classifieds leader, Webmotors.

But there are a few differences, too. In a country where personal safety can be a little dicey, mum and dad sellers are reluctant to hand out their home address to buyers. And where Aussie car owners might pimp their ride with a new sound system or mag wheels, Brazilians have other priorities.

“The number-one aftermarket product is bulletproofing,” McIntyre tells Chanticleer in his Melbourne office.

In a funny way, that’s also what Carsales stock has proven to be over the last 12 months – reasonably bulletproof.

In an environment where tech stocks, and particularly online marketplaces, have been hammered – Redbubble is off 74 per cent in the last 12 months, Kogan.com is off 26 per cent, Seek is off 23 per cent, and REA Group is off 3.2 per cent – Carsales is up 10 per cent, easily outpacing the 6 per cent fall in the ASX 200.

Where analysts and investors can be justifiably sceptical of Australian companies expanding offshore, news of McIntyre’s latest Brazilian deal was largely greeted positively, albeit with a few questions over the multiple paid.

The welcome that the deal received speaks to Carsales’ approach to offshore expansion; it also has operations in South Korea, the United States, Chile and Mexico, with 53 per cent of revenue now coming from international markets.

But the approval of investors also reflects the way the company has gained the trust of the market with a long-term approach.

The $353 million deal announced earlier this month sees Carsales increase its stake in Webmotors from 30 per cent to 70 per cent, essentially swapping positions with its joint venture partner, Spain’s Banco Santander.

McIntyre has long lusted after an increased stake in the Brazilian business, which has delivered compound annual EBITDA growth of 28 per cent over the past five years.

Each year, he would ask Santander if they wanted to sell down, each year he was given the same answer, and each year he’d be OK with that.

“It’s a nice place to be when everyone wants to have more of the same asset,” he says.

But Santander has recently undergone some strategic changes and McIntyre says the Spanish group felt confident in handing majority ownership to Carsales.

Softly softly approach

Much of this, he says, comes down to the attitude Carsales has taken to the joint venture since it was formed in 2013. With a 30 per cent stake, McIntyre says Carsales could have shared 30 per cent of its intellectual property. But instead, it went all-in to try to improve Webmotors’ operations – and Santander took note.

There’s a long list of criteria Carsales assess when entering an overseas market, including market position (it wants a number one or close number two player), capability of management and sophistication of the local online market (the less sophisticated the better, as it leaves room for growth).

The use of minority stakes to enter an overseas market is also important, both as a way to protect the capital of Carsales’ shareholders, and to allow McIntyre and his team to get comfortable with a region.

“The reason why we do that is because we want to learn the market. We want to understand the market and every market is different. We don’t have the approach of ‘Well, we’ve been successful in Australia, and we’ve just got a cookie cutter approach.’”

The latest Brazilian deal was struck on a multiple of 21.7 times EBITDA for the year ended December 31; Macquarie analysts said the median multiple for online marketplaces deals over the past five years is 15 times.

McIntyre is sanguine and says his focus is on the business, rather than the market reaction.

Imaginary nepotism

“I’ll be really honest with you. I don’t even think about it. Maybe I should, but I don’t. All I care about is how are we growing, what’s the earnings profile looking like, how are we accelerating that, how are we bringing people together through the group in the network and collaborating more effectively?

“Because I know if we do all those things, the share price should just take care of itself.”

The owner-operator mentality that Carsales has become known for can be traced back to McIntyre’s predecessor, Greg Roebuck, and it’s clear McIntryre has put his own stamp on it.

“We’ve always seen Carsales as our own business, we always treat every dollar like it’s our own,” he says. “We want to run this business like we’re setting it up so that our children can work in [it] one day.”

Imaginary nepotism sounds like a slightly odd concept, but McIntyre says it’s an effective tool for encouraging long-term thinking and an approach of stewardship. The power of this idea shows up in Carsales’ long-term returns: since 2009, the company’s value has grown 10-fold.

When McIntyre visits Brazil in the coming months, his focus will be on the product road map that Carsales plans to roll out now it has the keys to Webmotors, which will include the introduction of dynamic pricing and expansion of its efforts in some of Brazil’s second- and third-tier cities.

While much of this will be about exporting Carsales’ Australian IP to Webmotors, McIntyre is looking at what can be brought the other way, too. For example, Webmotors has a digital scratch and dent service that he believes could work well in other Carsales markets.

“Ultimately, where I want us to be is that we’re taking intellectual property or tech out of Brazil and we can export it back to the Australian market, or into the Korean market.”

 

This article was originally posted by The Australian Financial Review here.

Licensed by Copyright Agency. You must not copy this work without permission.

Disclaimer: This material has been prepared by AFR, published on 27 March 2023. HM1 is not responsible for the content of linked websites or content prepared by third party. The inclusion of these links and third-party content does not in any way imply any form of endorsement by HM1 of the products or services provided by persons or organisations who are responsible for the linked websites and third-party content. This information is for general information only and does not consider the objectives, financial situation or needs of any person. Before making an investment decision, you should read the relevant disclosure document (if appropriate) and seek professional advice to determine whether the investment and information is suitable for you.