AMA Group


Date of inclusion: 12 October 2021
Share price on inclusion in Marc & Stuart’s Top Picks: $0.47
52-week range: A$0.38 – A$0.87
Risk Level: Medium


More smash repairs as Australia gets back on the road again

AMA Group is the leader in the Australian and New Zealand collision repair industry and associated auto parts market. The company benefits from economies of scale it is building in an industry of mostly smaller players. In the short term we see the company benefiting from the end of lockdowns in eastern Australia, which means more people driving and therefore, unfortunately for drivers but fortunately for AMA, more accidents on the road that require AMA’s services.

A good FY21

In FY21 AMA grew revenue 11% from continuing operations, while EBITDA rose 25%, to $71.5m. In September 2021 the balance sheet was recapitalised partly through a rights issue at 37.5 cents that raised $100m, and another $50m in convertible notes that convert in March 2027 at 46.88 cents. This transaction would have provided liquidity in the event that lockdowns continued for much longer.

Capital S.M.A.R.T was a smart move

Sentiment towards AMA has been hampered by write-downs for Capital S.M.A.R.T, which was acquired from Suncorp in 2019. However, these write-downs were almost purely related to COVID and not a serious fault in the business.

An ‘unlockdown’ story

We see AMA benefiting from its scale position as well as the return to more regular driving patterns now that the country is coming out of lockdown, specifically New South Wales and Victoria shortly thereafter. To illustrate this point you just have to look at traffic numbers on Monday 11 October, NSW’s first day out of lockdown. Although traffic is nowhere near pre-pandemic levels yet, traffic was up 16% compared to similar days during lockdown.

Global car shortage means used cars stay on the road for longer

Additionally, car manufacturing worldwide is impacted by persistent component shortages, specifically semiconductors, or computer chips. This means that many car manufacturers are seeing fewer cars rolling off the assembly line, which impacts shipment numbers. Australia in particular is impacted by low car imports given that profit margins in this country are relatively low due to tariffs that are imposed on car imports by the Australian government as well as geographical distance from main manufacturing hubs. European manufacturers simply make more money selling a specific car in Europe compared to selling that same car in Australia.

Lower imports of new cars means that people will need to keep driving their current cars for longer. This has already led to increasing prices for used cars. For AMA we believe it will mean that spare parts sales will do well as long as the shortages last, because all these aging cars will need ongoing maintenance.

If the market projections are right, AMA is extremely cheap

The current EV/EBITDA multiple on FY22 consensus estimates is only 12x compared to an EBITDA growth expectation of 18.5% in that year. For FY23, which starts less than nine months from now, the EV/EBITDA multiple drops to 8x, while the market currently forecasts more than 49% EBITDA growth!

We believe AMA has the potential to get back to pre-pandemic levels, i.e. above $1 per share. If things don’t work out in the near to medium term, $0.40 would be our stop-loss level.


Read the most recent article on AMA here