Auto Partner: Revisiting The Investment Case In 2025

Auto Partner Once Again Has A Cheap Valuation, But Currency Headwinds And Margin Pressures Continue To Weigh On The Stock.

It’s time for an update on Auto Partner.

Auto Partner is Poland’s second-largest Auto Parts distributor and has competitive advantages in technology with a scale-based moat. The company earns high returns on invested capital and has ample opportunity to reinvest capital back into the business at high returns. Furthermore, Polish valuations are cheap, and Auto Partner remains no exception despite being one of Poland’s highest-quality companies.

I originally wrote the stock up in October 2022 when the stock was trading at 12 PLN. That write-up discusses the business in detail, and is available here:

I have held the stock since shortly after posting that write-up publicly back in 2022. I have watched and held as shares rose as high as 29 PLN but have since pulled back as low as 17 PLN. The stock rebounded up to 21 PLN in February but now sits near 18 PLN.

I trimmed my position at 24 PLN, and then again recently near 18.50 mostly as a risk/market exposure reduction play, leaving me today with half my original position.

A Technical Perspective: Charting Auto Partner’s Path Forward

A broader look at the weekly candlestick chart shows fortunate timing for my original write-up, as Auto Partner’s stock price entered an uptrend almost immediately in early 2023. That uptrend continued for about a year, followed by a nearly year-long pullback in 2024.

From a technical analysis perspective, the stock currently trades inside a downtrend channel (yellow trend lines) but found major support dating back to early 2023 at 17 PLN (blue horizontal line). Auto Partner appears to be a stock that respects technical levels well. In order for the stock to resume its upward trajectory, it will have to break above the current downtrend channel. That’s enough technicals though, let’s get into what has caused this price movement on a fundamental basis over the last couple of years, as well as what I expect going forward in 2025.

Auto Partner Stock Price Weekly Candlestick Chart

Why Margins Soared—Then Stumbled: Unpacking The Fundamentals of Auto Partner’s Last 2 Years

2023 was a strong year for Auto Partner. Margins had been increasing throughout the pandemic as inflation increased prices. Due to pandemic-related supply chain disruptions, a limited supply of auto parts allowed Auto Partner to raise prices and temporarily capture extra profits. Further benefitting Auto Partner were labor costs that lagged behind inflation. Auto Partner was winning not only on gross profits due to an ability to charge higher prices (from a combination of inflation and supply shortages), but also on operating margins due to low labor costs. Furthermore, a moderately strong economy still fueled by COVID-related global stimulus from many governments resulted in sustained demand for Auto Partner’s products.

Unfortunately, these profits ultimately proved more unsustainable than I originally anticipated in 2024. That, combined with slowing revenue growth throughout 2024 and Poland increasing minimum wage to keep up with inflation, ultimately resulted in many of the tailwinds that propelled Auto Partner to record profits in 2023 reversing in 2024, leading to lower profitability. Auto Partner still managed to grow revenue in 2024, but margins compressed as auto supply chains normalized. Many auto parts experienced deflation during 2024, while Auto Partner’s costs experienced inflation. This mixed environment took its toll on Auto Partner’s bottom line.

Further putting pressure on margins in 2024 were fluctuations in the Polish currency, the Zloty. Auto Partner derives approximately half its revenue from exporting Auto Parts to Western Europe. The Zloty had depreciated relative to the Euro in mid to late 2023. This resulted in Auto Partner purchasing inventory in late 2023 at a time when the Zloty was weak, followed by selling that inventory in early 2024 when the Zloty had bounced back. Auto Partner’s reports specifically state this impacted gross margins in H1 2024. I find this somewhat perplexing though, as Auto Partner’s gross margins in H1 2024 (27.09%) were higher than they were in H1 2023 (26.65%). As of the time of writing, I’ve reached out to IR to try to learn more.

Currencies Muddying the Water Potentially Masking Growth

Currency fluctuations don’t just impact margins, they also impact Auto Partner’s reported growth rates. When the Zloty appreciates against the Euro year-over-year, Auto Partner’s revenue growth - as reported in Zloty - is negatively impacted. This results in the reported growth rate understating the underlying performance of the business.

EUR/PLN Weekly Candlestick Chart

Apart from a short-lived Euro rally in late 2023, the Zloty has steadily strengthened against the Euro since mid-2022, breaking a trend of a declining Zloty that had persisted since the global financial crisis of 2008–2009.

This negative impact on Auto Partner’s growth rate can be demonstrated via a relatively simple example. Suppose Auto Partner generated sales in Euros of €20.0M in Q1 2023 when the EUR/PLN exchange rate was 4.7, meaning each Euro of sales translated into 4.7 PLN. The total quarterly revenue would be reported as 94M PLN. If, in Q1 2024, sales in Euros grew by 20% to €24.0M, but the Zloty exchange rate simultaneously strengthened to 4.3 PLN per EUR, Auto Partner would report revenue of only 103.2M PLN. This would represent just 9.8% growth in PLN terms, despite the underlying Euro-denominated performance and unit growth being 20%.

Investors would be more likely to give Auto Partner a pass here if Auto Partner reported currency-adjusted numbers, sales in Euros, or a unit sales metric for their Western European sales. Unfortunately, Auto Partner does not disclose any of these. Nonetheless, I believe it’s a safe assumption that unit volume growth was higher than reported revenue growth in 2024. Given continued strength in the Zloty in 2025 so far, I believe this continues to impact growth rates negatively.

Revenue Complexity: Understanding Auto Partner’s Monthly Growth Rates With Working Days

There is yet another consideration that must be taken into account when analyzing Auto Partner and its growth rates. Auto Partner releases preliminary revenue numbers every month (approximately a week after month-end). This information comes out well ahead of the quarterly reports, so many investors, including myself, track it. As discussed, currency conversions can impact the growth rates suggested by these numbers, but there is also another factor.

Many Auto mechanics in Poland only operate on weekday workdays. Hence, even a couple of extra weekend days or a holiday falling on days that would have been workdays in the previous year may show a decreased rate of growth. For example, a month with 18 working days compared to 20 would be 10% fewer working days. Over a year this makes virtually no difference, but when comparing smaller time frames like monthly growth rates year-over-year, it could easily be the difference between 5% growth or 15% growth. This is particularly important in months like December, where Christmas Day and the 26th (known as St. Stephen's Day in Poland) could fall on weekdays vs the weekend. Therefore, growth rates can be further adjusted for the number of working days in each month relative to that same month in the previous year.

2025 Outlook: Assessing Whether Auto Partner’s Growth Can Regain Its Seasonal Rhythm

2025 remains uncertain. Reported revenue growth re-accelerated in December 2024 and then again in January 2025 at 7.4% and 8.7% respectively, but fell to just 1.8% in February, resulting in the stock selling off from 19.50 back down to 18.00 The Zloty has remained strong relative to the Euro. However, I’m optimistic this is a growth rate low in February, at least in the near term, and the reason may be related to seasonality.