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05 May 2021
AB Dynamics (ABDP LN) - Premium valuation, mixed outlook mium valuation, mixed outlook
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AB Dynamics (ABDP LN) - Premium valuation, mixed outlook mium valuation, mixed outlook
AB Dynamics plc (ABDP:LON) | 1,780 -356 (-1.1%) | Mkt Cap: 408.2m
- Published:
05 May 2021 -
Author:
Robin Byde -
Pages:
10
Following the interims last week, the outlook for earnings appears somewhat mixed. Recovery has been stronger in the Lab Testing & Simulation unit, but Track Testing continues to lag due to COVID restrictions. H2 FY21e and FY22e will benefit from recently acquired Vadotech. However, Group gross margins are likely to be lower with this new activity. Combined with higher overheads, profits are forecast to be squeezed for the rest of this calendar year before reaching pre-COVID levels by end FY22e (i.e. August ’22). Set against this muted outlook for near-term earnings, the balance sheet remains strong with an estimated c.£14m of net cash by year-end. ABD can acquire more growth, but we think the pace of acquisitions will continue to be slow given the comparative lack of credible targets. Meanwhile, ABD continues to trade on a sizeable premium rating. The technology platform, rarity of its value-added products and balance sheet strength help to explain some of this. The Group may also be an M&A target as product development in Active Safety and Autonomy are in good demand. That said, some investors may view a forward PE of >50x (vs. LT average NTM PE of c.28x) as a bit too rich. On balance, we think ABD looks overbought, particularly given the current earnings recovery profile.