London, UK, 13 October 2020

Edison issues initiation on Stern Groep (STRN)

Downturns tend to be opportunities to invest in car dealerships, especially those that are likely to emerge stronger. Stern is well positioned to weather the current storm with its significantly restructured organisation. Its valuation is undemanding at 9.8x 2021e P/E and there is additional optionality in light of a potential merger with much larger Swedish automotive group Hedin.

Stern is trading at an FY21e P/E of 9.8x compared to the peer group average of 10.9x. Applying the average multiple and adding the market value of the stake in insurer Bovemij (€3.17 per Stern share) results in an implied valuation of €16.6/share. Scale is becoming even more important in light of the structural market changes and Stern and Hedin, a much larger Swedish automotive group, recently restarted their merger talks. Although no details have been released so far, we note that most of the company's recent divestments were made at a price to book value in excess of 1x. With Stern's reasonably well impaired book value of €23.54/share at H120, we believe this could provide some support in the ongoing merger discussions with Hedin. 

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