Automotive Holdings Group on the comeback trail

By Trevor Hoey. Published at Feb 25, 2019, in Trifecta

Australia’s largest new vehicle retailer, Automotive Holdings Group (ASX: AHG), delivered a promising interim result on Friday.

This triggered a 10% increase in the group’s share price, as management signalled tougher industry conditions were easing and some internal issues had been addressed, indicating that the company was in a turnaround phase.

This comes less than a month after Trifecta flagged the stock as one of its picks in an oversold motor vehicle retailing sector.

The company’s shares are now up more than 20%, no doubt targeted by forward-looking investors who are focused on the group being able to leverage its strong market position as industry conditions improve in fiscal 2020.

Importantly, last week’s rally wasn’t just a dead cat bounce as it was supported by the highest daily trading volumes registered in the last five years.

We indicated when reviewing the stock last month there was the potential for the group’s refrigerated logistics division to assist in offsetting some of the downside in automotive.

Not only has this transpired in the first half of fiscal 2019, but management expects that there will be a ‘substantial improvement’ over the previous corresponding period in the second half.

While management lowered its full-year profit guidance from a mid-range of $57.5 million to $54 million, this didn’t deter investors or brokers who were upbeat in their commentary.

Bell Potter analyst, Chris Savage said, “From a qualitative (operational efficiency) perspective, we believe 1HFY19 will be the trough and earnings will now improve over the short to medium term.”

He has a buy recommendation on the stock with a price target of $2.20 implying upside of 15%. Although, it should be noted that this is speculative.

The other motor vehicle player which we ran the ruler across in our Trifecta coverage was AP Eagers (ASX:APE), a company which delivered a particularly robust result last week.

The company’s shares finished the week at $7.50, up 20% since our review.

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