AB Dynamics PLC (LON: ABDP)

AB Dynamics PLC is an FTSE AIM 100 index listed Company, which designs, manufactures, and supplies advanced testing systems and measurement products catering to the needs of the global automotive market. Moreover, it is one of the most trusted global suppliers of products & services for the automotive test and verification sector.

On 27 April 2022, the Company will release H1 FY22 results.

Recent Trend of Dividend Payments

ABDP has adopted a progressive dividend policy with consistent dividend payments twice a year. Moreover, the Company had paid a final dividend of 3.24 pence per share with respect to FY21 on 28 January 2022. The ex-dividend date was 30 December 2021. Meanwhile, the total dividend of 4.84 pence per share paid during FY21 remained around 10% higher than the prior-year levels.

(Source: LSE website; Analysis done by Kalkine Group)

Growth Prospects (also covers AGM trading update, released on 12 January 2022)

• Launch of ABD Solutions: The Company’s ABD Solutions division received its first development contract, from an industrial equipment supplier in Japan, for a driverless retrofit solution for mining vehicles.
• Higher Proportion of Recurring Revenue: The sales of service and support contracts had resulted in an increased contribution of recurring revenue from 28% of the total Group revenue in FY20 to approximately 35% during FY21.
• Acquisition Benefits: The acquisition of Vadotech had progressed well and provided a strategically important footprint in the Asia Pacific region, allowing the introduction of the new divisional operating hub in Singapore.

Key Risks

• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• Covid-19 Disruptions: The Track testing revenue decreased by 4% because of an adverse impact of the Covid-19 pandemic.
• Acquisition Risk: The financial position could be hampered due to the overvaluation of the target company, ineffective due diligence, and failure to identify proper synergies.

Key Fundamental Statistics & Shareholding Pattern of AB Dynamics PLC.

Best (Anthony) is the most significant shareholder as it holds nearly 5.93 million shares as of 31 December 2021.          

FY21 Financial & Operational Highlights (for the twelve months ended 31 August 2021, as on 24 November 2021)

 (Source: Company Filings)

• Top-Line Business: ABDP had shown decent revenue growth of around 6% to £65.4 million, with a significant proportion of revenue added during H2 FY21. The Company had shown robust year-on-year revenue growth of approximately 42% during H2 FY21.
• Divisional Performance: The significant growth in SPMM and simulation revenues led to solid growth of around 62% in the Laboratory testing and simulation revenues during FY21.
• Decent Cash Generation: ABDP had produced £16.0 million of cash during FY21. In comparison, it had generated £6.9 million of cash for FY20.

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 08 February 2022, at 09:40 AM GMT, ABDP’s shares were trading at GBX 1,475.00, down by around 0.34% from the previous day closing price. Stock 52-week High and Low were GBX 2,470.00 and GBX 1,400.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~35.04 approaches an oversold territory. 

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Business Outlook

The Company has achieved record business performance during H2 FY21 as it delivered the highest six-month revenue during the period. The acquisition of Vadotech and the launch of ABD Solutions would diversify the revenue streams in future. Meanwhile, the Company aims to strengthen the operational and commercial platform by making increased investments towards new product development, capabilities, and the senior management team. Overall, ABDP remained on track to meet expectations for FY22 driven by a recent track record of strong order intake and continued strategic investment.

Considering the new product launches, decent revenue growth during FY21, strong balance sheet, consistent dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on AB Dynamics PLC at the current market price of GBX 1,475.00 (as on 08 February 2022 at 09:40 AM GMT), with lower-double digit upside potential based on 41.48x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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