Bell Potter says this ASX small cap could almost double in value

Shares in automotive repairer AMA Group Ltd (ASX: AMA) have fallen almost 50% over the past 12 months, but the analyst team at Bell Potter thinks the company is worth another look.

Solid profit result posted

The company last week reported its full-year results, with revenue coming in at $1.04 billion and EBITDA tipping the scales at $68 million, up 8.6%.

Managing Director Ray Smith-Roberts said the company had delivered positive results despite a challenging operating environment.

He said:

AMA is increasingly becoming a vertically integrated business that combines vehicle repair services with automotive parts sourcing and supply, enabling greater control over repair quality, turnaround times and costs. Being vertically integrated, with multiple income streams, provides us with a key competitive advantage. Strong performances from our ACM, Mechanical and ADAS businesses demonstrate the value of complementary capabilities across the vehicle repair lifecycle and position the Group to respond to evolving customer and industry needs.

The company opened three new sites during the year, in South Australia, New South Wales, and Tasmania.

The company also declared a dividend of 0.5 cents per share – its first since 2019.

On the outlook for FY27, AMA Group said it expected EBITDA to be in the range of $75 to $80 million, “subject to ordinary trading conditions”.

Shares looking cheap, broker says

Bell Potter has a positive outlook on the company despite the earnings results missing consensus estimates.

They said:

The result … missed the guidance of $70-75m and was largely driven by a lower-than-anticipated uplift in repair volumes during Q4 as a result of higher fuel prices and public transport concessions. A highlight of the result was the positive free cash flow of $2.5m – we had forecast around breakeven – and the lower than expected year end net debt level of $18.4m. Positive surprise of the result was a final dividend of 0.5c fully franked where we had not forecast any.  

Bell Potter slightly downgraded its earnings expectations for AMA Group, with its EBITDA forecast now $76.7 million, which is towards the lower end of the company’s own forecast.

This flowed through into a lower price target for the company, down from $1 to 90 cents, but still well above the current share price of 49.5 cents.

Bell Potter said one of the main risks to the company was customer concentration.

They said:

The car insurance market in Australia is heavily concentrated and a significant proportion of AMA’s revenue is derived from the top two insurers, Suncorp and IAG. Any breakdown in the relationship with one or both of these insurers could have a material adverse impact on AMA’s revenue and profitability.

The post Bell Potter says this ASX small cap could almost double in value appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.