AMA Group Limited

AMA Details

AMA Group Limited (ASX: AMA) is one of the market leaders in the Australian and New Zealand autobody repair industry, vehicle aftercare, and accessories market.

H1FY21 Performance – For the First Half Ended 31 December 2020

• Revenue and Other Income Grew by 19.5%: Revenue and other income from continuing operations for the period grew by 19.5% YoY to $435.1 million, driven by the preference to use private transport over public transport and the change to domestic driving holidays over international travel.
• Returned to Operating Profit in H1FY21: The company reported an operating profit of $7.1 million in H1FY21 versus an operating loss of -$1.6 million in H1FY20. The rise is primarily driven by the benefit of full six-month trading for acquisitions like Capital Smart and ACM Parts.
• Reported Net Profit of $4.6 million: Reported a net profit of $4.6 million in H1FY21 versus a net loss of -$12.3 million in H1FY20.

Financial Snapshot (Source: Company Reports) 

Recent Update

• On 2 July 2021, the company stated the realignment of its business segments, and several internal promotions and appointments at senior positions to create a diversity of industrial and corporate exposure and ensure the company has the appropriate governance and depth of skills.

Outlook

As per the market update released on 26 May 2021, the vehicle volumes are close to pre-Covid levels. This trend is expected to continue to improve and act as a tailwind into the existing and coming financial year. Further, it is in regular contact with its major customers to mitigate the impact related to the disruptions to labour or parts available to the company, including any sort of abnormal costs increases.

Importantly, the financial performance so far is in line with the company's objective, driven by returning volume and current trading expectations. The company has access to financial resources to undertake acquisition opportunities that are strategically aligned with the growth.

Key Risks

The company continues to work with local regulatory authorities to minimize the risk to the environment, reduce waste and ensure compliance with regulatory requirements. Further, the company is exposed to credit risk, and liquidity risk, and market risks such as foreign exchange risk and interest rate risk. The lingering of the pandemic with the recent rise in delta variant might lead to localised if not nationwide, lockdowns which would ultimately result in lesser use of auto and auto-parts and lesser earnings for the company.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While experiencing low volatility, the stock has given a flattish close for the ongoing week at $0.53. The technical indicator RSI with a reading around 42 and a flattish curve at the end, suggests neutral to flat momentum for the stock.

Going forward, the stock may have resistance around the converging point of the 38.2% retracement level and the upper Bollinger band of $0.67 whereas support could be around the 23.6% retracement level of $0.47.

Stock Recommendation

The stock of the company has made a 52-week low and high of $0.423 and $0.895, respectively.

We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). We believe that the stock might trade at a slight discount as compared to its peer average P/E (NTM trading multiple) considering higher Debt to Equity and a longer Cash conversion cycle versus the industry median.  

We have taken peers like Brambles Ltd. (BXB.AX), SG Fleet Group Ltd. (SGF.AX), Bingo Industries Ltd. (BIN.AX).

Considering the rise in vehicle volume near to pre-Covid levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.535 per share on 13^th July 2021.

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 on 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 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 uptrend may take a pause due to profit booking or selling interest.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.