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AHE VIDEO




 

Stock Of The Day - Automotive Holdings (BUY)

Automotive Holdings Group Limited (AHE) released its 1HFY15 results which looked better than the market’s expectations with EBITDA before unusual items of $104.1m, indicative of a growth of ~18% over prior corresponding period (pcp). AHE reported 1HFY15 sales growth of 11% to $2,566m. AHE also reported for NPAT of $45.0m (17% growth) owing to lower unusual items and tax. There is a likelihood of witnessing higher unusual items and tax in 2HFY15. The net debt of $788m (including floorplan) at 31 December 2014 was noted and this is up around $105m compared to that reported at 30 June 2014. The rise is based on the payment for the Bradstreet acquisition along with additional floorplan financing from the acquired dealerships other than the dividend payment. However, the gearing was healthy at 26%. The Company declared fully franked interim dividend of 9.0cps in consensus with expectations. The EPS has been impacted by equity raising.


Financial Performance (Source – Company Reports)

Based on a division-wise overview, we note that Refrigerated Logistics witnessed EBITDA of $27.5m which helped uplift the overall performance. This was a big ~79% jump over pcp based on contribution from Scott’s and JAT acquisition. The EBITDA margin for the division rose 130bps to 8.6% (from 7.3% of the pcp) given better cold store utilisation in WA, VIC, and QLD; changeover to new facilities affected by overhang lease; and contribution from the Scott’s and JAT acquisition. With the development of Erskine Park and rationalization of duplicated leases, a margin improvement is further expected through FY16.


Evolution of Refrigerated Logistics (Source – Company Reports)

The Automotive Retail division also saw robust EBITDA result of $70.4m indicative of 10% surge over pcp. Contribution from Bradstreet helped steer the EBITDA for Automotive Retail. We expect that a complete six-month contribution from Bradstreet will benefit the segment in 2HFY15. On the other hand, there was about 40% slump in EBITDA before unusual items ($6.2m) over pcp for Other Logistics. Feeble A$ impacting KTM, turbulence in truck and bus market impacting WMC, GTB, and the VSE business along with change in Mitsubishi distribution impacting AMCAP EBITDA, affected the Other Logistics division. AHE’s holding of Covs stores during 1HFY15 proved helpful as the business seems to grow at a good pace. There was an improvement in property with the reporting of a breakeven result in 1HFY15. We do note that the division’s 1HFY15 revenues were of the order of $195.7m which is 1% rise over pcp.


Performance (Source – Company Reports)

We did not see any specific FY15 guidance being provided by AHE. Nonetheless, AHE did come out with few encouraging outlook statements for 2HFY15. Particularly, the Company is confident that relatively low fuel prices and interest rate will help the automotive sector to gain momentum. Integration of Scott’s and JAT will be fruitful. It is expected that the new car sales market may witnesses stability post the recorded dip up till now in FY15. Overall, the Company’s FY15 revenue may benefit by about $600m based on the bolt-on acquisitions. The greenfield expansion is also expected to add value.


Growth from Investment (Source – Company Reports)

One needs to be wary of the risks that entail slumps in automotive retailing and logistics markets owing to any economic, regulatory or any other change such as change in consumer preference, competitor activity etc. Further, any dip in meeting performance target through acquisitions made so far may also serve as a bottleneck for growth.


AHE Daily Chart (Source - Thomson Reuters)

Nonetheless, the overall play with benefits from acquisition, and other strategies look appealing. The Company has recently announced about acquisitions of dealerships in Brisbane and Perth. Specifically, AHE announced about reaching the agreements for acquisition of Leo Muller CJD dealership at Aspley in Brisbane and Paceway Mitsubishi dealership at Osborne Park in Perth. These will altogether involve about $5 million for goodwill and assets. The acquisitions will help AHE to have 173 franchises at 97 dealership locations in Australia and New Zealand. Further, the Company expects these to be immediately earnings accretive.

Based on the foregoing, we put a BUY recommendation for this stock at the current price of $4.25.