On Wednesday, Citi began its coverage on Cazoo Group (NYSE:CZOO), an online car retailer, assigning a Neutral rating to the company's stock. The firm noted that while the company's structural outlook appears positive and its high Net Promoter Score (NPS) in the UK indicates successful consumer engagement, there are concerns regarding its rate of cash consumption and the broader economic climate.
Citi acknowledged Cazoo Group's strategic shift towards enhancing efficiency and profitability, moving away from its previous focus on aggressive growth. Despite this change in direction, Citi anticipates that the company's Gross Profit per Unit (GPU) will improve. However, they also expect the company to continue experiencing substantial cash burn over the next few years. This situation could potentially lead to the need for additional capital fundraising in 2024.
The firm refrained from setting a price target for Cazoo Group's shares. The decision comes as Citi awaits further details on the company's revised strategy, which is intended to address its current financial challenges. The analyst's comments reflect a cautious stance, balancing the company's positive customer reception against its financial expenditures and the looming economic downturn.
Cazoo Group's focus on efficiency and profitability is a response to the higher-than-anticipated cash burn. The firm's coverage assumes that while the company is performing well with consumers, as evidenced by its NPS rating of over 80, the financial aspect requires careful management in the face of a softening macroeconomic environment.
The absence of a price target from Citi suggests a wait-and-see approach, as the market and the firm look forward to more information on how Cazoo Group plans to navigate the challenges ahead and stabilize its financial situation.
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