Berenberg upgrades Auto Trader stock rating to buy on dealer recovery

Berenberg upgraded Auto Trader Group PLC's stock rating to "Buy" from "Hold" on Monday, with the price target raised to GBP6.60 from GBP5.10. The company's strong gross profit margin of nearly 80% makes the stock appear undervalued at current levels. Auto Trader's H127E results, released on November 5, exceeded both Berenberg's and consensus expectations.

The upgrade follows the successful resolution of Deal Builder rollout issues, resulting in better-than-anticipated dealer recovery numbers. Berenberg anticipates continued improvement on the 5.5% pricing and packaging event for FY28, although the company remains cautious about ongoing dealer cost pressures. Although AI risk affects valuation, evidence suggests Auto Trader can leverage AI and data to enhance buyer and customer experiences.

The firm believes Auto Trader's FY27E P/E of 14x, a 22% discount to peer average, is unjustified given the current market conditions. With improved dealer conditions and accelerated AI-driven product development, the outlook for the stock has become more favorable. Auto Trader currently trades at a P/E of 16.2, reflecting a 22% discount to the peer average, and maintains a "GOOD" financial health score.

Autotrader reported GBP 313.4 million in group revenue for the first half of 2026, with stable revenue excluding vehicle and accessory sales at GBP 301.8 million. Basic earnings per share rose 5% to 18.1 pence, despite a 1% decline in operating profit to GBP 198.5 million. The company adjusted its full-year forecast for vehicle and accessory sales from GBP 40 million to GBP 25 million as it focuses on its intermediary role, signaling a transition to an AI-driven platform.