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One Speculative Industrials Stock to Bet on at Current Levels- AMA

Feb 02, 2022 | Team Kalkine
One Speculative Industrials Stock to Bet on at Current Levels- AMA

 

AMA Group Limited

AMA Details

Key Takeaways from Q2FY22 (31 December 2021): AMA Group Limited (ASX: AMA) operates in the automotive aftercare market and offers vehicle accident repairing services & vehicle accessories. Vehicle panel repairs and Automotive parts and accessories are its two main operating segments.

  • Business Disruptions: AMA witnessed significant COVID-19 impact of restrictions in Q2FY22 most severely in October 2021 which led to reduced repair volumes in NSW (New South Wales) and Victoria. In Q2FY22, the repair volumes increased mostly in line with the growth in mobility; however, the December 2021 month’s absolute repair volumes remain affected.
  • Leadership Changes: Geoff Trumbull was declared to join the business as the Group Chief Financial Officer (CFO) in February 2021. Meanwhile, Darren Basford will serve as the Interim Group CFO to ensure an orderly transition.
  • Financial Update: AMA reported lower net cash outgoings of ~$9.8 million for Q2FY22 versus ~12.79 million in Q1FY22. It received $44 million net proceeds in Q2FY22 from the retail entitlement offer undertaken in Q1FY22 (September 2021). AMA held a cash balance of $81.30 million plus unused available finance facilities of $8 million, taking the total available funding to ~$89 million as of 31 December 2021.

Key Metrics, Highlights; (Analysis by Kalkine Group)

Key Risks: AMA faces the risk of lower repair volumes due to lower traffic, & COVID-19 restrictions, low-cost funds to run business operations smoothly.

Outlook:

  • AMA is preparing for a busier summer season post the ease of restrictions in November 2021 in Victoria and NSW.
  • In FY22, AMA prioritises to develop mutually beneficial contracting arrangements, realise the gains of the new business structure by improving operations and grow the supply business unit to increase margins and ensure supply. The company remains focused on accretive growth via organic and acquisition growth.
  • The Group will declare the 1HFY22 results via a teleconference and webcast at 11:00 AM (Melbourne/Sydney time) on 22 February 2022.

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

Source: 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: The stock of AMA gave a negative return of ~15.84% in the past three months and a negative return of ~11.64% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.383 - $0.736. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering the persistent COVID-19 impact on repair volumes, and slight uptick in the debt-to-equity ratio. For this purpose of valuation, a few peers like Downer EDI Limited (ASX: DOW), SG Fleet Group Ltd (ASX: SGF), Mader Group Ltd (ASX: MAD), and others have been considered. Considering the low trading levels, increase in mobility, expected improvement in repair volumes upon ease of restrictions, lower net operating cash outflows in Q2FY22, prudent management operations, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.425, down by ~1.163% as of 1 February 2022.

AMA Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

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


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