After hitting all-time highs in August, shares in Australia's premier automotive retail company Automotive Holdings Group Ltd (ASX: AHG) have slumped almost 30%. The fall warrants further research into this once high-flying company as it comes despite the S&P/ASX 200 Index (ASX: XJO) trading relatively flat over this period.
Here's what I found.
About AHG
Automotive Holdings Group (AHG) listed on the ASX in 2005 as Australia's second largest-listed car retailer behind AP Eagers Ltd (ASX: APE).
Starting from one Holden dealership in Perth, AHG has grown to become a $1.2 billion behemoth and is now the largest automotive retailer in Australia. According to its website, AHG currently holds more than 179 car and truck franchises at more than 105 dealership locations across Australia and New Zealand.
AHG's portfolio of franchises include top-selling vehicle brands like Toyota, Ford and Hyundai. This enables the group to sell 12 of the 13 most popular passenger vehicle brands in Australia.
Needless to say this market-leading position places AHG in good stead when it comes to posting solid results.
Company financials
For the year ended 30 June 2016, AHG reported robust revenue growth of 7.2%. Although this lagged AP Eager's stellar 12.1% increase to total revenue, investors must remember that AHG's growth comes off a much larger prior year base.
In fact, AHG's revenue growth trebled the average industry growth rate of about 2%, demonstrating the strength and resilience of its well-known brands.
Net profit after tax (NPAT) grew a modest 2.2% for the year to $90 million. However, the underlying performance of AHG's businesses tell another story.
Digging deeper
AHG's flagship Automotive Retail division grew profit before tax (PBT) by an impressive 8.4% for the full-year. Revenue swelled 10.6% to $4.7 billion as organic growth and improved performance across its existing operations led to higher unit sales.
Of course, not all of AHG's businesses flourished. The strong performance in AHG's retail division was offset by a whopping 53% fall in PBT in AHG's Refrigerated Logistics. Although this business segment accounts for only 9% of total earnings (EBITDA), it was enough to make management hold AHG's final dividend steady at 13 cents per share.
Foolish takeaway
Despite AHG's Refrigerated Logistics business floundering, I believe the company remains poised to deliver market-beating returns through further accretive acquisitions and increased demand for new and used vehicles in the current low-rate environment.
Accordingly, investors who look past AHG's poor performance in its Refrigerated Logistics business are rewarded with a handy 6% dividend (fully-franked) and prospects of capital growth if current trends continue. That's why I rate it as a buy today.
