Avayler: Analysts back ongoing growth

Financial analysts have responded positively to the news of Bridgestone’s investment in Halfords Group’s Avayler Software-as-a-Service (SaaS). Their analysis also reveals further details of the current scale and future plans associated with the Avayler business.

Writing in an investor’s note published the morning of the Avayler/Bridgestone announcement, Investec analysts Kate Calvert and Ben Hunt reiterated their “buy” rating and spoke highly of the deal: “We view this deal as a real endorsement of the platform by the largest global player and it helps underpin Avayler’s mid-long term profit forecast…”

While the Halfords announcement stated that Avayler’s full-year 2023 result amounted to a roughly £75,000 loss, the Investec analysts indirectly highlighted that Avalyer’s full-year 2024 loss will 30 times bigger:

“There is no need for changes to forecasts as Bridgestone  was  by  far  the  largest  of  the  two  new  contracts implied in Avayler’s forecast guidance for a loss of £2-3 million in full-year 2024. Getting Bridgestone over the line should also give other automotive players, looking to sign up…”

On that note, Investec pointed out a Halfords presentation slide which suggests there are 33,335 “automotive repairers in the UK, another 206,722 in Europe and 279,532 in the United States (see diagram). Of course, that >500,000-potential-customer figure represents a huge potential market. What that doesn’t explain is how Avayler will win over customers that may view both Halfords and its initial customers base as competitors.

Nevertheless, Avayler is clearly on a growth path. Full-year 2023 turnover amounted to around £2 million, with 70 staff supporting growth and development. The full-year 2024 forecast is for £5-6 million turnover and circa 100 employees. In the mid-term this is slated to grow to £14-20 million turnover and 120 staff, with the ultimate goal of £25-35 million and 120 staff.

Like winning business with Walmart

Meanwhile, Peel Hunt analysts Jonathan Pritchard, John Stevenson and Ruben Pathmanathan described the Bridgestone investment as “catching the biggest fish of them all” and predicted that “more wins will follow”.

To that end the Peel Hunt analysts wrote “We immediately liken the deal to winning business with Walmart. Whilst the contracts with American Tire [ATD] and Mobivia are important we would not be surprised if Avayler now took a large step forward in the consciousness of many garage companies and similar, worldwide, now that this deal has been announced.

“Bridgestone’s 5 per cent stake does not get it anything but normal shareholder rights, but it would not surprise us if there were discussions on wider best practice between the companies over time.”

On the subject of Bridgestone’s implied $60 million valuation of Avayler, they continued: “[that] may look cheap if things pan out as we predict…We do not believe the market is valuing Avayler correctly within the current multiple, if giving it any value at all, and it is another reason why the shares are cheap.”

Moving forward, there is also the suggestion that – together with the well-documented and rapid growth of Halfords Autocentres – the Halfords Group is transitioning into a motoring services business:

“The Interims in November should again showcase the progress Halfords has made in evolving itself into a motoring services business…and Avayler could be a diamond within it.”

Halfords Group publishes its first-half 2023 financial results on 29 November.