One of the enduring features of small cap investing is the prevalence of founder-led, family-linked or employee-owned businesses within our investment universe. One of the consistent themes I’ve witnessed over the years is the outperformance of many these companies against those run by professional managers. These founders derive meaning from the challenge, identity and ethos of their work and not necessarily from the incentive package the Board’s remuneration committee has devised for them. Prior analysis reveals what I have long suspected – that having a founder’s money next to ours is very powerful.
One of the recent founder-led additions to the Milford Dynamic Fund has been Autosports Group (ASG). ASG operates a diversified portfolio of car dealerships across Australia’s luxury and prestige markets, and also has dealerships in Auckland. It’s the dominant player in the segment, covering 80% of the top luxury brands by volume. Key brands include BMW, Mini, Volvo, Audi and Mercedes Benz. The portfolio also includes emerging EV brands such as Polestar and Zeekr, providing optionality in the Chinese OEM-led luxury EV market. If you haven’t heard of Zeekr, do yourself a favour and check out the new electric SUV 7X, available for below A$60,000 – there is currently a 2,000-order waiting list across Australia!
Autosports was co-founded by Ian Pagent and Nick Pagent in 2006, with an Audi dealership in Sydney. The father and son founders remain deeply engaged with the business, with Ian providing strategic oversight as Non-Executive Director and major shareholder, and Nick as Managing Director. The family retains 52% of the company, so remains heavily aligned with shareholders.
From eight dealerships in FY14 to 75 today, ASG has grown steadily across new prestige and luxury vehicles. They offer a full suite of services — car sales, servicing, parts, finance, and insurance — providing revenue throughout the vehicle lifecycle. Dealerships are mainly in NSW, VIC, and QLD, with exciting new models from Audi and Mercedes arriving later in 2025.
Why ASG excites us
- Strengthening household consumption with discretionary spending gaining momentum
As interest rates fall and wages rise, more Australians can afford new cars — which is good news for luxury and prestige dealerships like ASG. Recent data from the Australian national accounts for the June quarter shows household income rose an incredible 7.6% pa. This is well above the average of 5.5% over 10 years, driven by wage growth, tax cuts, interest rate cuts and elevated government assistance payments. Within a car dealership, rate cuts not only spark consumer demand, they drive earnings leverage through i) increased financing to fund the purchase, ii) lower floorplan finance expenses, iii) lower corporate debt expense and finally iv) increases to ASG’s property portfolio which sits at $244m (33% of market cap).
- Growing through acquisition
ASG is growing not just by selling cars from its existing roster of dealerships, but by also acquiring more dealerships. It pays attractive prices for businesses that are still below pre-Covid earnings, which could boost profits and market share.
- Attractive price for investors
ASG as a stock is what we consider growth at a reasonable price. The company trades on 12.5x price to earnings ratio – a 40% discount to listed peers and 45% below the small industrials market. The company is also forecast to pay a 5% dividend yield.
Founder-led, leveraged to the luxury market, and positioned to benefit from EV adoption and dealership expansion, ASG is a company worth watching as the Australian car market recovers. While demand can be cyclical, profits depend on maintaining strong brand relationships, and acquisitions carry execution risk, we don’t think the company’s growth potential is captured in the current valuation.
