Africa-Press – South-Africa. WeBuyCars has seen its share price more than double in the 18 months it has been listed on the JSE, with the second-hand car trader showing continued growth.
Its strong growth and investment in its technology platform position it to be a disruptor in the form of many successful South African companies, such as Discovery and Capitec.
This is likely to lead to significantly higher market share in the vehicle market and potentially an entrance into the new car market.
“This is one of those businesses that gets better as it gets bigger. We expected WeBuyCars to replicate the kind of market share gains that these businesses have achieved,” Coronation analyst Ruan Koch said.
In a research note on WeBuyCars, Koch explained that Coronation believes the market does not fully appreciate the opportunity set the company enjoys.
This makes it highly attractive to the asset manager, which used WeBuyCar’s listing in April 2024 to increase its stake in the company that it had gained during the pre-listing restructuring of the business.
At the time, Coronation believed that the unbundling of WeBuyCars from the now-defunct Transaction Capital presented a good opportunity for investors to own a high-quality company with immense growth opportunities.
“Unbundlings and spin-offs often create attractive investment opportunities for active investors. Limited coverage and experience of a company often means that the market’s price discovery process is very inefficient,” Koch explained.
Koch said Coronation tapped into its research on WeBuyCars’ peers in the United States and Europe through the stories of Carvana and Auto1.
This understanding, combined with research on WeBuyCars, enabled Coronation to move quickly and with conviction when it listed on the JSE, Koch said.
“Our confidence in WeBuyCars is paying off. It has delivered excellent results in its short history as a listed company. As a result, the share price has performed well, increasing 2.5 times from the R18.75 listing price,” Koch said.
WeBuyCars has come under increased pressure over the past year, with affordable cars from China and India eating into the used car market.
It has also suffered from a shift in the market towards new cars, with several interest rate cuts from the Reserve Bank helping to make car loans more affordable for South Africans.
“As we have seen, high multiples are vulnerable to short-term corrections where earnings delivery is not linear,” Koch explained.
Over the long run, WeBuyCars’ strong fundamentals are expected to drive continued growth, with Koch saying at current levels the share remains undervalued.
WeBuyCars’ secret sauce
Koch outlined some of WeBuyCars’ competitive advantages that are set to enable the company to continue growing at a rapid pace and take market share as previous disruptors, such as Capitec, have managed to do.
Its most important advantage currently is its consumer-to-business vehicle acquisition model, with the process becoming heavily digitised in recent years.
This has made it highly scalable, with WeBuyCars opening ‘supermarkets’ in nearly every major city and hundreds of buying pods across South Africa.
The combination of the digitisation of the process and scale has resulted in a very low unit cost, which no competitor can match.
Tens of thousands of consumer leads are screened each month, with the best converting into profitable trades, giving WeBuyCars unparalleled visibility into the overall vehicle market.
The model has also enabled WeBuyCars to open up its platform to car dealerships as a wholesale channel, with it sourcing vehicles at lower prices than dealers can get themselves.
This ties into another advantage WeBuyCars has in the immense data it has collected on buying and selling vehicles in South Africa over 24 years.
“WeBuyCars has a hard-to-replicate data advantage. Its proprietary dataset provides unmatched context on the South Africa vehicle market and consumer behaviour,” Koch said.
This advantage compounds every single day, with WeBuyCars adding thousands of new leads every day. The more this repeats, the more refined the dataset and the insights become.
The company has also crucially shown a willingness to use this data advantage to drive better pricing and enhance transparency. This translates into better buying, faster turnaround times, and fewer loss-making vehicles.
WeBuyCars is also investing in its own vehicle-assessment scorecard, which is slated to replace DEKRA inspections. Koch expects this to improve transparency, strengthen pricing confidence, and result in a better customer experience.
Becoming the next Capitec
WeBuyCars Dome
WeBuyCars is currently trading around 16,000 vehicles a month, which implies it has a market share of around 15% of the used car market.
While this is impressive, Koch said the company will have to continue taking market share to justify its valuation and maintain its trajectory.
The company’s management team, centred on brothers Faan and Dirk van der Walt, aims to trade 23,000 vehicles a month by 2028.
Koch explained that WeBuyCars’ continued growth is dependent on its scale and technology platform, which offers price and convenience that competitors cannot match.
Many of the company’s competitors are small, local players who cannot leverage anything near the scale of data that WeBuyCars can.
Crucially, the company’s dataset enables it to buy vehicles at better price points, maintaining its margins and making it highly attractive to dealers.
Koch expects this to lead to market share gains in the future as the company continues to take over a market made up of thousands of smaller players.
As the company scales, it also strengthens its bargaining power with finance and insurance partners, enabling it to offer an enhanced proposition to customers.
This also diversifies its revenue streams and enables the company to bundle insurance products that offer annuity income. Its current partners include Netstar, OUTsurance, and Capitec.
“WeBuyCars will become an ever larger origination channel for these partners and should therefore, over time, increase its share in these profit pools,” Koch said.
Coronation sees scope for WeBuyCars to take significantly more market share in the coming decades, potentially as much as 30% to 40%.
“South African precedent supports sustained share gains by scaled disruptors. Case studies include Discovery Health in medical schemes, Clicks and Dis-Chem in pharmacies, and Capitec in banking,” Koch said.
These businesses grew their market share well beyond initial expectations by reinvesting lower cost advantages into superior value for clients, something which WeBuyCars is doing.
“This is one of those businesses that gets better as it gets bigger. We expect WeBuyCars to replicate the kind of market share gains that these businesses have achieved over time,” Koch said.
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