AMA Group Limited
Specialty Retail | Raising Target Price
AMA-ASX | Price A$0.98 | Market Cap A$482M
PRICE TARGET A$1.31↑ from A$1.27
AMA has announced the acquisition of a portfolio of six vehicle repair centres. The six locations will add additional annualised revenues and EBITDA of $22.5m and $1.8m respectively. AMA also updated on its Greenfield expansion, which will see seven new sites in operation in the seven months to July '17, while an additional three sites are now being planned for 1H18. We believe the pipeline of further acquisition opportunities and Greenfield expansion remains significant.
· AMA will pay total consideration of $6.2m in scrip and cash for the six vehicle repair centres, which have been acquired on an average acquisition multiple of 3.4x annualised EBITDA.
· Of the $6.2m in consideration, $5m is in scrip issued at $0.98cps and, subject to earn-out provisions, is escrowed until 30 June 2018.
· The acquisitions are immediately effective, and as a result we continue to forecast the acquisition of an additional $20m of vehicle panel repair revenues during FY18, which we expect will add, in absolute terms, additional revenues of $10m and EBITDA of $1m for the period.
Greenfield expansion continues. An additional three locations commenced operation during 2H17, while an additional four sites will commence operation this month, and another three locations are planned for establishment in 1H18. We note the significant Greenfield expansion will represent a drag on both FY17 and 1H18 earnings, which is factored into our existing forecasts.
Upgraded earnings. On the back of the announced acquisitions we have increased normalised FY18E and FY19E EPS by 3%.
Automotive Solutions Group (ASX: 4WD: Not Rated) update. With the offer period now closed, AMA currently holds 31.2% of 4WD and needs to determine whether to go live with another bid, or increase its position gradually over time. We estimate that a successful cash bid of 35cps for 100% of 4WD would represent a >7% EPS accretive transaction to AMA.
Recommendation and valuation
We retain our BUY recommendation, while our DCF valuation and target price increase to A$1.31/share, from A$1.27/share.