AB Dynamics on right road

Automotive testing services and equipment supplier AB Dynamics (LON: ABDP) was hit by Covid-19 restrictions and their knock-on effect in the second six months to August 2020.

The annual results will be published on Wednesday 25 November. These should indicate how well the different parts of the business are recovering. There will also be news of the return to dividend payments.

Track testing activities were suspended during the original lockdown and they have begun to recover and could get back to previous levels next year.

Lab testing and simulation activities were hit by deferred orders. There may be indications in the trading statement whether these orders are due to commence.

Annual results

Manufacturing facilities continue to operate, while office personnel have been working from home. AB Dynamics has said that full year revenues will be between £60m and £62m, up from £58m the previous year, although in like-for-like terms they will be lower. Underlying pre-tax profit is likely to decline from £13.7m to around £11m – the first half profit was £8.7m. A higher proportion of direct sales will have improved gross margins.

To put that in perspective, at the beginning of 2020, 2019-20 revenues were expected to be £73.7m and pre-tax profit £17.2m.

Net cash is likely to have declined from £36.2m to £31m. A placing had raised £45m during May 2019, although most of that cash has subsequently been spent on acquisitions. There was also £5.2m spent on constructing a new facility.

Future

AB Dynamics has shown that it has the resilience to remain highly profitable during a period when trading was difficult.

At 2125p, the share price has more than doubled since the low in March, but it is still one-fifth lower than one year ago. The shares are trading on around 50 times estimated 2019-20 earnings.

The rating would still be high if profit returned to previous levels. The investment put into the business in the past couple of years would be expected to prompt a significant increase in profit, but the current uncertainty means that the benefit may be delayed.

The long-term outlook for the business is good. Automotive companies will need to spend on testing and development as they try to produce new ranges of electric vehicles.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.