AUTOCANADA INC.

(MT Newswires) -- National Bank noted that AutoCanada Inc. (ACQ.TO), an automobile dealership group, said overnight Wednesday Q3 revenue grew 35% from a year earlier to $1,624 million, exceeding consensus at $1,529 million and the bank's estimate of $1,342 million.

Adjusted EBITDA amounted to $76.4 million, up 12% year on year and above the bank's estimate of $71.7 million and the consensus at $73.0 million, the bank noted. Diluted adjusted EPS amounted to $1.16, notably below consensus at $1.29 and the bank's forecast at $1.20, driven by an increase in interest expense of $25 million versus $16 million last year.

The bank also said that rising rates and low unit volumes compressed margins. It said a 37% increase in cost of goods sold translated to a 100-basis-point EBITDA margin contraction while increased interest expenses on higher rates and debt balances led to a contraction on the bottom line. "More importantly, volumes continue to be depressed, and we are concerned that this pricing environment is not sustainable in light of a darkening macro outlook," the bank said.

The bank noted that AutoCanada remained "extremely active" on the M&A front. It also noted that the company's substantial issuer bid and the acquisitions contributed to a quarter-on-quarter net debt increase of $57 million, though leverage of 1.5x remained below the company's target range. While this should allow AutoCanada to pursue further acquisitions, the bank said it remains wary of debt-financed expansion given high levels of macro uncertainty and weak consumer confidence.

National Bank has a Sector Perform rating on AutoCanada and a target price of $37.00.