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How Did The Annual Results For Automotive Holdings Group Pan Out?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Automotive Holdings Group (ASX: AHG) swung to a full year loss this year, as new car sales slumped for the 15th month in a row and the industry environment remains challenging. The company still had a positive operating NPAT of $58.7m for continuing operations, which is not too unreasonable for a cyclically challenged business worth $1.06bn.

Automotive Holdings Grp - Annual results
Automotive Holdings Group Car Dealerships (Credit: Automotive Holdings Group)


The main issue with the results however is the company declaring a statutory loss of $232.6m after tax which, in light of the company’s size, will make a significant dent on the group’s balance sheet. Within the automotive retail market, the company blamed the banking Royal Commission, wealth effects from the housing market decline and general economic uncertainty for the lacklustre sales environment.

One factor saving investors from a substantial stock market decline on the day is the ACCC saying that AHG can merge with AP Eagers. While the transaction was approved on the 25th of July, the guarantee of a buyer supported the share price, as investors know they can still get sell their shares to the acquirer. The regulator believes that there will not be concerns over competition in the new car market after the deal, either in the sub-markets for individual cities or nationally. It is important to analyse competition on both levels; while a local monopoly is much easier for consumers to avoid than a national one and thus presents less anti-competitive pressures, adequate local competition is still beneficial to consumers.

The company trades on a dividend yield of 2.1% and was projected to be on a forward FY21 PE multiple of 15. Bulls would argue that these multiples present an attractive opportunity to enter a quality company that will have market power through its position as the largest Australian car dealership business, which is temporarily weak on the back of cyclical factors. The deal is structured as AP Eagers taking AHG over, and the board has unanimously recommended that shareholders accept the offer in the absence of a superior proposal. This follows their successful negotiation for the withdrawal of previous conditions that their offer was subject to, and also helps explain why investors were not too phased by the bad news around AHG’s profitability. As such, investors would do well to analyse the combined group and reassess their investment views once the deal goes through, instead of focussing on the multiples for AHG in isolation.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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