Overview
AB Dynamics PLC (ABDP) is a Wiltshire, United Kingdom-based designer, manufacturer and supplier of advanced testing systems and measurement products and is one of the world’s leading specialists in automotive test systems. The group provides a comprehensive range of vehicle test and development systems, from validation and durability to the development of advanced technologies for critical new areas of technology development such as active safety and autonomous driving. The company’s clients include numerous government test authorities, all seven Euro NCAP laboratories and the top 25 global vehicle manufacturers. The company’s major product offerings include Vehicle driving simulation, Kinematics & Compliance, Driving Robots, NVH Test Systems and ADAS targets. The company’s clients include Audi, ADAC, Bentley, Autoliv, Bast, BMW, Bridgestone, BYD and Bosch etc.

Key Financial Highlights – H1 Financial Year 2019 (£, million)
Driven by buoyant ADAS testing market, the success of new product launches and an operational initiative to reduce delivery lead times, the group delivered revenue of £25.8 million, representing a 69 per cent growth against the reported H1 2018 revenue of £15.3 million. A modest reduction in the gross margin to 50.1 per cent (H1 2018: 51.4 per cent) – was reported due to a product mix with a higher proportion of laboratory testing sales. Due to increased revenue and strong operating leverage, the adjusted operating profit surged by 95 per cent to £6.4 million, while adjusted operating margins improved by 320bps to 24.7 per cent. Profit before tax increased to £6.3 million, representing a rise of 114 per cent. Driven by strong operating performance and a decrease in the effective rate of tax, basic and diluted EPS both increased by 130 per cent to 28.36 pence and 27.61 pence respectively. The Board announced an interim dividend of 1.612 pence per ordinary share, representing an increase of 10 per cent over the prior year. The company’s net cash increased by 46.51 per cent to £18.9 million in H1 FY2019against £12.9 million for H1 FY2018.

Share Price Performance

Daily Chart as at May-22-19, before the market closed (Source: Thomson Reuters)  

On 22nd May 2019, at the time of writing (before the market closed, at GMT 01:25 pm), AB Dynamics PLC shares were trading at GBX 2,550, up by 3.45 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,616.20/GBX 1,020.52. The company's stock beta was 1.30, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £491.51 million with a dividend yield of 0.15 per cent.

Valuation Methodology


Conclusion 
The company's growth and future success will be dependent to some extent on the successful completion of expansion strategies proposed, and there is a risk that the necessary additional capital would not be available on a timely basis, on favourable terms, or at all. The company may suffer material losses from uninsurable or uninsured risks or substantial liability claims due to the technicality in its operations. While the barriers to entry in its market are high, there are a number of competitors for each of the Group's product categories which may have a material adverse impact on the Group's revenues and profitability. The competition in the industry is increasing at a fast pace, which might result in downward pressure on research and development budgets due to lower vehicle unit sales. Additionally, adverse issues in the global economy risk reducing the demand for the company's products. Current financial ratios indicate the company is overvalued in comparison to its peers. Based on a valuation done using the above method, we have given a sell recommendation at the closing price of GBX 2,465 (as on 21st May 2019) with a low double-digit down-side based on 47.50x NTM Price/Cash flow (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and Peer information has been taken from Thomson Reuters.
*The sell recommendation is also valid for the current price as covered in the report (as on 22^nd May 2019).

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