Small Caps | Mar 05 2019
AMA Group has substantial opportunities in the automotive aftermarket and continues to consolidate a position in panel repair.
-Targeting $1bn in revenue by FY21
-Enters heavy-motor panel repair market, procurement negotiations continue
-Sustained organic revenue growth and acquisition opportunities support outlook
By Eva Brocklehurst
Automotive aftermarket specialist AMA Group ((AMA)) continues to grow and consolidate its position in panel repair and vehicle protection. The company has cited an underperforming acquisition, ARM in Sydney, as the cause of weak margins in panel repair in the first half result.
Panel repair operating earnings (EBITDA) margins were reduced to to 8.8% versus 11.5% in the prior corresponding half. AMA Group has reaffirmed its FY19 guidance for operating earnings, excluding greenfield losses, of $58-60m and a target of $1bn in revenue by FY21.
The company has entered the heavy-motor panel repair market, while procurement negotiations continue. A major customer is expected before the full-year results in August.
Brokers, while disappointed with the miss to expectations in the first half, have zoomed in on the consolidation opportunities, which UBS calculates is now worth over $70m in revenue. This will be complemented by 4-6 greenfield developments in the pipeline. UBS does not consider the valuation demanding and maintains a Buy rating with a $1.35 target.
Wilsons is still slightly concerned about panel margins, although agrees that sustained revenue growth in panels and the acquisition pipeline support the company's consolidation strategy and outlook. Operating cash flow benefited from a negative working capital position while gearing remains modest. An interim dividend of 0.5c per share was in line with the prior corresponding period but below the broker's forecasts.
Wilsons lowers its forecasts to the lower end of guidance, which marks a -5% decline in estimates for earnings per share. The broker also lowers the longer-term panel margin forecasts to 9.7% from 10% and maintains a Hold rating and $1 target.
At this stage, neither Wilsons nor Bell Potter include any contribution from the new procurement business in estimates because of a lack of clarity. Earnings were slightly lower than Bell Potter's estimates for the first half while revenue was modestly ahead, growing 32% to $302.4m.
The broker expects strong growth in underlying earnings out to FY21, driven by organic growth and acquisitions. Growth forecasts of 59%, 34% and 28% are slated for FY19, FY20 and FY21, respectively. Bell Potter has a Buy rating and $1.25 target.
The company operates several business divisions including panel repair, vehicle protection, automotive electrical & cable accessories, and the re-engineering of components such as transmissions and torque converters.
The business is the largest accident repair group in Australia, although it still has a relatively small market share of a very fragmented industry. The company is considering further acquisitions in the panel business as well as a component/accessories.
The main strength of AMA Group's is the management team, in Bell Potter's view, because of long-standing customer relationships and a proven track record of targeted acquisitions and successful integration. Each acquisition needs to be Incorporated into the centralised finance and administration system and this remains an important key key to integration success.
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