Why Automotive Holdings Share Price Jumped 6.9% Today

Automotive retailer Automotive Holdings Group Ltd [ASX:AHG] jumped almost 7% to $3.69 per share in trade today.

The billion-dollar company now trades for a little over 21-times earnings, paying a dividend yield of 5.15%.

What happened to Automotive Holdings Share Price?

This morning, AHG announced that it would be selling its refrigeration logistics business. The buyer, CC Logistics Pty Ltd, is paying $400 million for the division.

The payment is made up of $280 million in cash and $120 million of finance lease liabilities.

According to AHG chairman David Griffiths, ‘the sale provides AHG with the opportunity to realise a certain value for shareholders that reflects this continuing improvement.

Expected completion of the transaction should be in the first half of 2018.

What will AGH do with the proceeds? According to the group, it’ll grow its automotive retail operations. Also, with the spare cash, AHG will be able to strengthen its balance sheet, giving the group an opportunity for short-term expansion.

What now for Automotive Holdings?

In the same announcement, AHG also released a trading update. Earnings, as a group, fell 4.8% to $59.7 million.

Automotive Holdings Group

Source: Automotive Holdings Group

The company generated a net profit of $21.3 million from July to October 2017. This was 3.1% lower than the prior corresponding period.

If we take a step back and look at the history of AHG’s financials, it’s still not the most impressive company.

Automotive Holdings Group

Source: Morningstar

It’s true that sales are growing by 7.3% annually and that cash from operations is growing at more than 8.5% each year. But profits have done little to nothing over the same time.

The company only generates around $39 million in free cash flow, which is the cash left over after deducting for all capital expenditures. And it continues to pay out more than 100% of earnings.

While the stock jumped this morning, it’s hard to see how it could continue to climb, unless it can improve its operations and increase earnings.


Härje Ronngard,

Junior Analyst, Money Morning

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