2 Cheap Cars Group (NZSE:2CC) Is Achieving High Returns On Its Capital

In the dynamic world of used automotive vehicle retail and vehicle finance businesses, 2 Cheap Cars Group Limited (NZSE:2CC) has been making waves with its impressive returns on capital. The company, founded in 2011 and headquartered in Auckland, New Zealand, has been consistently delivering high returns through its strategic focus on gross margin expansion and tight control of operating costs. Let's delve into the key factors contributing to 2CC's remarkable performance.

1. Gross Margin Expansion Strategy: 2CC has successfully expanded its gross margin by 6% to 23% for the full year, up from 17.07% in the previous year. This expansion was achieved through optimised pricing, effective promotional activity, improved finance and insurance penetration, and the continued insourcing of compliance activities. As a result, the full year gross margin increased by 39% to $20.3 million. This strategy has led to a 105% increase in underlying EBITDA including finance income to $11.4 million in FY24, reflecting the company's ability to generate higher profits from its sales.
2. Tight Control of Operating Costs: The company's focus on tight control of operating costs has been instrumental in enhancing its capital returns. Despite the rate of inflation, 2CC managed to keep its operating costs relatively low, with a 1% increase to $8.9m in the full year 2024. This demonstrates the company's ability to minimise cost increases and reduce reliance on third parties throughout the value chain. By maintaining a low level of operating cost increases, 2CC has been able to increase its earnings and maintain a healthy inventory level, which are key factors in driving capital returns.
3. Prudent Capital Management: 2CC has reduced its interest costs by 52% on FY23, reflecting changes in finance facilities and prudent capital management. This has positively impacted the company's net operating cash inflow and overall financial health. By managing its capital prudently, 2CC has been able to maintain a strong financial position, with cash of $4.7m, no net debt, and total equity of $20.4m as of 31 March 2024.
4. Inventory Management: The company's strategic decision to maintain stronger inventory levels has contributed to its well-positioned inventory and overall capital efficiency. Despite a decrease in net operating cash inflow, largely due to this decision, 2CC is well positioned with inventory valued at a healthy $13.9m, up $5.5m over FY23. This increase in inventory levels has allowed the company to maintain a strong inventory position, which is crucial for its used automotive vehicle retailer and vehicle finance businesses.



In conclusion, 2 Cheap Cars Group Limited (NZSE:2CC) has been achieving high returns on its capital through its strategic focus on gross margin expansion, tight control of operating costs, prudent capital management, and effective inventory management. By observing and learning from the company's successful strategies, investors can gain valuable insights into the factors contributing to its impressive performance. As the company continues to grow and adapt to the ever-changing market landscape, it is poised to maintain its high returns on capital and create value for its shareholders.