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.

 (Data Source: LSE Website, Research 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.
• 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 

• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Covid-19 Disruptions: The Track testing revenue decreased by 4% during FY21 because of an adverse impact of the Covid-19 pandemic.

Key Fundamental and Shareholders Statistics 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.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 22 March 2022 at 08:09 AM GMT, ABDP’s shares were trading at GBX 1,083.00, up by around 0.74% against the previous day closing price. Stock 52-week High and Low were GBX 2,470.00 and GBX 920.00, respectively.

On a daily chart, the stock price is sustained around the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI at ~41.31 approaches an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company has achieved record business performance during H2 FY21 as it reported the highest six-month revenue during the period. ABDP has launched several new products such as LaunchPad 80, Guided Soft Target 120 and aVDS Mk2 into the market during FY21. Furthermore, all these new products have made a strong contribution to the recent growth in order intake. ABDP has planned to make accelerated investments to enhance the operational and commercial platform. Overall, the Company remained on track to meet expectations for FY22, driven by a recent track record of strong order intake and continued strategic investment.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the 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 price of GBX 1,083.00 (as of 22 March 2022 at 08:09 AM GMT), with lower-double digit upside potential based on 30.94x 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 decisions should be made depending on the investors’ appetite for 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 is subject to the factors discussed above.

Note 3: Target Price refers to a price level that 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.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 5: Dividend Yield may vary as per the stock price movement.

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 the 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 unfavourable movement in the stock prices.

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