Trade Me cut to 'sell' from 'buy' at broker Craigs

Trade Me [NZX: TME] stock was downgraded to 'sell' from 'buy' by brokerage Craigs Investment Partners, saying shares in New Zealand's largest online auction site were "fully priced."

Craigs research analyst Stephen Ridgewell reduced his rating in a January 29 report. The stock, which has soared 32% since hitting a low in August last year, has declined 4.1% since the report was published and recently traded at $4.02.

Trade Me, whose annual profit was little changed in 2015 from the year earlier, is likely to post no growth in underlying earnings before interest, tax, depreciation and amortisation in 2016 as modest revenue gains in its general items unit and stronger classifieds are offset by margin decline, according to the brokerage.

"Margin pressures should ease and earnings growth improve in the 2017 financial year but we think margin and volume headwinds make it unlikely Trade Me can sustainably grow faster than mid single digits medium term," Mr Ridgewell said. "Trade Me shares now appear fully priced relative to growth, peers and the market."

Trade Me is rated an average 'hold' according to a Reuters poll of analyst recommendations. Four analysts rate it a 'sell,' three a 'hold' and one a 'buy,' according to the Reuters data.

The Wellington-based company's margin, measured as its earnings before interest and tax as a percentage of sales, is expected to slip to 56.7% this year from 59.6% last year, according to the Reuters data. Ridgewell expects a lower margin of 55.8%.

Trade Me is due to report its first-half earnings for the six months ended December 31 on February. 17.

(BusinessDesk)

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