AMA Group earnings skid

[This story has been updated following a late interview with AMA's chief executive, Ray Malone]

It’s not quite a car wreck for AMA Group’s shareholders, but it’s close enough with the stock suffering its worst one-day tumble in three and a half years.

The automotive parts and services group skidded 14.6%, or 4 cents, into the red to 23.5 cents in afternoon trade after management delivered a weaker-than-expected half year result that casts doubt on the group’s ability to meet 2013-14 full year consensus earnings forecast.

The man behind the wheel of AMA, Ray Malone, is not flustered. If anything he is pretty pleased at how the group has performed in a challenging market that has weighed on the industry. The headwinds include the slowdown in the mining sector as AMA provides accessories and parts to trucks and commercial vehicles used at mines.

"I am not bothered at all. I am actually very bullish," Malone tells Eureka Report. "The reason it doesn't bother me is because this is just a natural cycle. You can't have linear growth."

AMA's sales for the six months to end December slipped 6.8% to $30.8 million as net profit from continuing operations fell 30.9% to $2.6 million. The sharp drop in its bottom line is mainly due to an unusually large income tax bill from the closing out of legacy bank debt, which brought AMA to the brink of collapse a few years ago before Malone became the chief executive and rescued the group.

If its tax liability stayed flat from the previous corresponding period, net profit would have fallen 12.5%. That’s still not a great result but Malone believes he is still on track to double group earnings before he retires in four years, a goal he revealed to me during an interview in November last year. 

But there are some positives from today’s results. Malone says that the worst is over and he is noticing a pick up across all the divisions, including Alanco, which is exposed to the mining slowdown.

It’s acquisition of Custom Alloy (a bull bar manufacturer) is also poised to contribute to earnings in the second half and its panel beating business, Mr Gloss, has entered the current half on a strong footing with a “record  January and excellent February”. Mr Gloss is one of the few businesses that delivered decent 7.7% revenue growth for the half.

I am expecting to see a stronger June half result but it is unlikely AMA will meet consensus net profit forecast of $7.4 million for 2013-14.

I am hoping AMA will at least be able to pull in a full year profit of $5.92 million, which would put the stock on a reasonable price-earnings multiple of 13.3 times, which is roughly inline with its peers and a 28% discount to sector darling ARB Corporation (ARP).

Further, AMA is committing to paying at least a 1.6 cent final divided. This would put the stock on a 6.8% net yield, or 9.7% once franking credits are added. AMA does not pay an interim dividend.