Ab Dynamics Plc (ABDP) specialises in manufacturing, designing and supplying globally automotive business of advanced measurements and testing products for vehicle brakes, suspension and steering both on the test track and in the laboratory.  Its geographical segments include the UK, Rest of the European Union, North America and Rest of the World. It designs and manufactures specialized testing systems to produce equipment for its customers; develops suspension, brake, chassis and steering systems; evaluate vehicle dynamics and safety systems on the track; employ driver in loop simulation for prototyping; develop and evaluate the next generation of safety systems in vehicles; test and evaluate the technology for use in future driverless cars/autonomous vehicles, and carry out end-of-line noise/vibration (NVH) testing of power train assemblies.

Financial Highlights (FY2018, £ million)

(Source: Annual Presentation, Company Website)

The company's high-quality financials are the result of a prudent financial position, attractive performance and reasonable cash generation efficiency. Ab Dynamics Plc reported sales of £37.05 million for the fiscal year ending August of 2018. This represents an increase of 51 per cent as compared with the financial year 2017, when the company's sales were £24.57 million. The company's adjusted operating profit was £8.54 million, up by 45 per cent as compared with the financial year 2017 data. This adjusted operating profit margin was lower than the company achieved in 2017. Adjusted Profit before tax, excluding share option costs, increased by 45 per cent to £8.61 million (FY17: £5.94 million). Cash flow from operations increased by £7.8 million to £9.9 million (FY17: £2.1 million). Basic EPS increased by 74 per cent to 36.29 pence (FY17: 20.83 pence), Diluted EPS increased by 70 per cent to 35.03 pence (FY17: 20.56 pence). Proposed final dividend increased by 10 per cent to 2.20 pence per ordinary share (FY17: 2.00 pence). Total dividend per share stood at 3.6p, up by 10 per cent as compared to 3.3p reported last year in FY17. Net cash stood at £15.94 million as at 31 August 2018 (31 August 2017: £9.62 million), reflecting strong balance sheet position.

Share Price Performance

Daily Chart as at Mar-29-19, before the market close (Source: Thomson Reuters)

At the time of writing, (as on March 29, 2019, at 10:25 AM GMT) shares of Ab Dynamics PLC were quoting at GBX 1,608.00, down by 27 points or 1.65% against its previous day closing. During the last one-year, shares have reached a 52w high of GBX 1,925.00 and a 52w low of GBX 831.00. The outstanding market capitalisation of the company stood at £321.76 million. At the current price (quoted in the price chart) stock was trading 16.47% below its 52w high and 93.50% above its 52w low. One-year price return of the stock stood at around 74.87%.

Valuation Methodology

*All forecasted figures and Peers information have been taken from Thomson Reuters.

Conclusion
Ab Dynamics PLC is a high-quality driven company. It has strong financials, good earnings quality and the management expects sustainable higher growth in coming quarters based on strong growth catalysts including positive market demand, planned operational improvements, growing interest in simulation systems which will lead to reduced delivery lead time. With low operational risk, the company has marginal information risk and acceptable market risk. Based on above factors and supported by valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 1,635 (as on 28th March 2019) with single-digit upside potential based on 49.56x NTM Price/Earnings multiple (approx.) on FY19E earnings per share.

*The buy recommendation is valid for the current price as covered in the report (as on Mar-29-19).
 

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