AMA Details

AMA Group Limited (ASX: AMA) deals in accident repairing, aftercare and accessories products in automotive market. It is the leading Collision Repairer in Australia and New Zealand.

• Minor bumps in Trading Days faced during 3^rd September – 13^th September 2021 to fulfil a capital raising process, at AMA’s discretion.
• On 3^rd September, AMA released a clarification to “Media Speculation”, stating that they are undergoing capital structuring review to manage the short-term disruption due to COVID-19. Which was followed by:

1. Capital Raising of $150 million: this will further enhance the balance sheet flexibility, liquidity to suffice the losses caused by COVID-19, and to further strengthen the growth Strategy.
2. The funds raised will be used to repay the debt amount of $72.5 million and $69.3 million of Working Capital facilities.
3. AMA holds longer duration of debt, as there is no debt facility maturing before October 2024.

• Cessation of Substantial Shareholding: Mitsubishi UFJ Financial Group, Inc., ceased to be a substantial holder in AMA on 8 September 2021.
• Three Acquisitions completed with - Western Trucks, National Trucks (brings 9 Heavy Motor Businesses) and Perth Parts Solutions further enhances its presence in West Coast of Australia and thereby impacting its market share.

FY21 Key Results Highlights:

• Cash Balance Details: A decrease in cash balance has been reported from $112.92 million at the end of FY20 to $64.20 million at the end of FY21. Such decrease resulted from the repayment of Total Debt of $102.5 million.
• Net Loss Details: In FY21, the company reported an increase of 48.1% Y-o-Y in net loss, which came in at $91.98 million, as compared to $62.12 million in FY20.

Net Debt Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the continuous changes in the industry trends which makes it more challenging to sustain. Due to COVID-19 restrictions, the company is exposed to low mobility and fewer kilometres travelled (domestically and internationally), which might impact its operational efficiencies and cost management strategies.

Outlook: Looking forward, with the removal of travelling restrictions in FY22, AMA expects to focus more on repair volume, staff retention, operational efficiency, and reduction of debt. AMA with current market share of ~14% in the vehicle repair market, aims on following strategies:

1. Procuring the Quality Products
2. Producing by leveraging the technical skills, scale, and expertise in the business
3. Maintaining commercial long-term relations with the customers and their retention

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has provided a negative return of ~26.73% and is trading lower than the average 52-week price level band of $0.383 and $0.87. The stock has been valued using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at some premium to its peers’ average EV/EBITDA, considering its capital raise, debt reduction and decent outlook, etc. For the purpose of valuation, peers like SG Fleet Group Ltd (ASX: SGF), Vicom Ltd (ASX: VCOM), Autosports Group Ltd (ASX: ASG), and others have been considered. Considering the company’s rise in FY21 revenue, capital and debt restructuring, strategic acquisitions, current trading levels, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.44, as on 14 September 2021, 01:10 PM (GMT+10), Sydney, Eastern Australia.

AMA Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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