We identify the following risks to the share price:
• Market & Mix risk – There is a risk that online used car penetration does not increase as expected and Aramis underperforms its targets. A decline in car ownership (and shift to usership or subscription) could also impact Aramis’ growth prospects. It also has exposure to physical showrooms in the UK and Belgium. This means that group revenue growth is likely to be lower than online auto retail peers medium-term until pre-registered and physical is a smaller part of the mix. If there is a structural decline in physical dealers (especially if OEMs are shifting more rapidly away from a franchise model), there is a risk that refurbished B2C used car growth does not entirely offset the lack of growth in physical/offline sales and/or pre-registered.
• Competitive risk – There is a risk that the competitive landscape increases, and with a number of well-capitalised platforms entering Europe, this could impact Aramis’ growth prospects and/or lead to higher investment requirements.
• Supply disruption and/or macro impact – Given Aramis’ focus on younger vehicles and contribution from pre-registered vehicles in particular, there is a risk that a decline in new car sales has a negative impact on Aramis’ inventory supply. Tight supply could also lead to an increase in costs and have an adverse impact on the margin. Aramis’ margin expansion target is back-end loaded and expected to occur FY25-30 on the assumption that it can drive operating leverage on areas such as marketing and SG&A, drive efficiencies in the metal margin, and increase services penetration. There is no certainty that it will execute on all of these factors, which could lead to ongoing margin pressure and free cash outflow.
• Regulatory risk – There is a risk that increased regulation of consumer lending may limit the potential finance income upside for Aramis, and a shift to electric and hybrid vehicles may see subdued market volumes for a period and more uncertain pricing in the second-hand car market.
• M&A-related execution risk – Aramis’ future expansion strategy is via M&A (within Europe). While there are merits to M&A-driven expansion, it also brings with it execution risk. There is also a risk that the Aramis has to raise further cash for M&A via equity in the future, depending on the size of the potential transaction.
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