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Kalkine Daily 17/04/2015 + Automotive Holdings

Apr 17, 2015

In today’s daily we have covered stock research on Automotive Holdings (BUY).








 

The S&P 500 was down by 1.64 points or 0.08% on Thursday and closed at 2104.99 points.  U.S. stocks ended marginally lower on Thursday as lingering worries about upcoming corporate earnings reports offset enthusiasm about a trio of soaring Wall Street debuts. Also drawing attention were several well-received IPOs. Crafts marketplace Etsy Inc., party supplier Party City Holdco Inc. and high-speed trading firm Virtu Financial Inc. made market debuts, posting double-digit share gains. SanDisk Corp. shares sank 4.5% after the chip maker said its first-quarter profit plunged 86%, as revenue fell and the company booked acquisition and restructuring-related charges.

Stocks have risen this month, advancing back toward all-time highs, as a number of early earnings reports came in better than expected. The Dow and S&P are each up nearly 2% so far in April and are approaching records last seen in early March. After hitting an all-time high on Wednesday, the Russell 2000 index of small-capitalization stocks pulled back 0.2%. Germany’s DAX fell 1.9% and France’s CAC 40 lost 0.6%, as German government bonds hit record highs. Netflix Inc. said Wednesday it added 4.88 million subscribers in the March quarter, which topped Netflix’s own forecast for 4.05 million additions. Shares soared 18%.



Sandisk Daily Chart (Source - Thomson Reuters)
 

S&P ASX 200 was up by 39.10 points or 0.66% on Thursday and closed at 5947.50 points. Mineral sands producer Iluka Resources was the worst-performing stock in the ASX 200, dumping 7.9 per cent to $7.70 after a first quarter update showed production and revenue both took a hit year-on-year in the three months to March. Gas player AWE Ltd jumped 11.1 per cent to $1.40 after delivering an upbeat exploration update. Resources giant BHPBilliton lifted 2.4 per cent to $30.23, while rival Rio Tinto edged up 0.1 per cent to $55.87. Telstra Corporation rose 0.7 per cent to $6.23, while Medibank Private lifted 1,7 per cent to $2.36. Woolworths was unchanged at $29, while Wesfarmers, owner of Coles, added 0.6 per cent to $43.61.

Australia's biggest stand-alone oil producer Woodside Petroleum added 0.2 per cent to $35.48 as chairman Michael Chaney told the annual general meeting the company has a strong cash position and is braced for the downturn in oil prices, which have lost 60 per cent in the past 12 months, to last many years. Iron ore miner Fortescue Metals Group gained 5.4 per cent to $1.96 as quarterly production statistics showed it has continued to shave costs and increase production. Arrium was the top performer in the ASX 200, spiking 20.7 per cent to 17.5¢. Commonwealth Bank of Australia rose 0.6 per cent to $93.01, while  Westpac Banking Corp lifted 0.9 per cent to $39.27. ANZ Banking Group rose 0.2 per cent to $36.02, and National Australia Bank gained 0.7 per cent to $39.31




Medibank Daily Chart (Source - Thomson Reuters)

 
Top Performers on the ASX 200 were :-

 


 

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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.
 



 


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