Our primary valuation methodology for Auto Trader is a DCF analysis using a long-term growth rate of 3% and discount rate of 8.1%. This drives our estimate of fair value of 924p, which we use as our target price.

AUTO's core business is largely dependent on UK car dealerships, so it is key to consider the outlook for the UK used car market. Risks to our investment case and achievement of our target price include:
• An increase in the pace of industry consolidation, which could lead to a faster decline in retailer forecourts (lower customer numbers for AUTO).
• Greater-than-expected resistance from dealers to price increases or lower take-up of up-sell and cross-sell services, could lead to Auto Trader’s revenue growth could be lower than expected. We see limited risk of this due to AUTOs strong brand awareness and position with UK consumers.
• Non-delivery of Deal Builder as an adjacent revenue stream. It remains a small share  of consensus revenues in the mid-term (not yet forecast separately from core).
• A change in the competitive landscape, impacting the ability to put through pricing as expected or causing an uptick in marketing.