Automotive Holdings Group

By Jason Fittler

Automotive Holdings Group Limited (AHE) is a diversified automotive retail and logistics group.

It has operations in every Australian mainland state and in New Zealand.

The Company operates its automotive retailer business in Australia through its subsidiaries. These operate in Western Australia, New South Wales, Queensland and Victoria.

AHE reported FY14 adjusted NPAT of $78.7m, up 8% on pcp and broadly in line with estimates of $79.3m.

The second half showed solid momentum, up 13.8% on pcp.

The Automotive division primarily drove the group result with FY EBITDA up 9.8% on pcp on margin of 3.4%. Operating cash flow of $102m grew 13%, however capex of $111m was driven by acquisitions.

Adjusting for floor plan financing, the balance sheet is in excellent shape, with net debt of $93 or 0.5x EBITDA.

Despite the negative revisions to our short-term estimates, rolling forward our discounted cash flow for the end of FY14 results in our discounted cash flow derived valuation price target increase 20cps to $4.50.

The FY14 result highlights two key investor issues:

(i) AHE is exceptional at selling cars; and

(ii) earnings from Logistics needs to improve to justify the investment.

As such FY15 is a critical year for AHE. It needs to prove that the logistics strategy is on course to deliver a positive return on capital over the medium term.

In our view, the current share price does not incorporate any benefit from the recent acquisitions.

We believe earnings will improve going forward.

We maintain our buy rating.

For more information about Automotive Holdings Group please contact us on 07 4771 4577.