WeBuyCars cheaper than expected
WeBuyCars’ true price-to-earnings ratio is lower than the official numbers show, making the company cheaper than many investors think.
This week, WeBuyCars released a trading statement for the six months ending 31 March 2025, which showed a strong performance.
The company expects to increase its earnings by more than 100%. This would result in a profit of at least R505 million from a loss of R69.6 million in the previous interim period.
The profitability seems like a swing from a loss to profitability. However, WeBuyCars faced significant one-off non-cash charges in the previous period, which distort the numbers.
In the previous interim financial period, WeBuyCars adopted a new memorandum of incorporation that nullified the company’s shareholder agreement as a private entity.
This led to the company derecognising WeBuyCars call options, which were worth R426 million and formed part of the previous shareholder agreement.
The derecognition of the call option assets from the company’s balance sheet was reported in the income statement as a financial loss.
Although accurately reflecting the loss of an asset, this line entry was not a cash flow item, which could be viewed as once-off in nature.
Removing this item from the company’s income statement would therefore more accurately reflect the company’s performance.
Daily Investor calculated WeBuyCars’ normalised net profit by removing once-off, non-cash items.
The current net profit between R505 million and R509 million represents a 42% increase from the previous period’s normalised net profit of R357 million.
Based on the reported earnings figures, WeBuyCars is currently trading at a price-to-earnings (P/E) ratio of around 48.
However, removing the effect of the once-off non-cash items brings WeBuyCars’ P/E ratio to around 18. It is, therefore, much cheaper than the official numbers show.
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