AMA Group: An overlooked ASX opportunity?

AMA Group Limited (ASX: AMA) may present an opportunity for patient investors who can see opportunity in this under-appreciated business

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AMA Group Limited (ASX: AMA) released its half yearly result on 21 February, 2012. The results from this car parts and panel beating business were mostly steady and solid as expected, following our coverage of the company back in September 2011.  (Since that time, AMA has paid a fully franked dividend of 1 cent per share, and its share price has appreciated roughly 35%.)

Investors would have had some indication of the result from the earlier results of ARB Corporation Limited (ASX: ARP), and the ABS data on motor vehicles and SUV sales.

The positives from the latest results are:

  1. Operating cashflow remains healthy at $3.2m for the half;
  2. Debt reduced by $2.2m;
  3. Finance costs reduced to $441k for the half, overall costs contained.
  4. Yearly dividend flagged by management;
  5. Good trading months for January and February 2012.

The negatives for the latest results are:

  1. Sales growth is relatively soft, and large drop in revenue for Panel Repair division;
  2. Operating margins slipped slightly to 14.6%.

Management has previously stated its intent to focus on current businesses, to ensure each business is profitable on its own, to reduce debt quickly, and to utilise its franking credits.

The latest report confirms that they are doing exactly what they have promised.  The company does not promise booming growth and AMA is not a business that will set hearts aflutter.

In fact, we’re not market timers, but it’s entirely possible that the lack of growth, no exciting news and the absence of a half yearly dividend may cause impatient investors to sell, pushing the share price down in the coming weeks.

AMA’s market capitalisation is around $40m. Business operations generate cash of about $7m per year, and accrued losses will ensure that no tax is actually payable for at least 3 to 4 years.  It is rare to find opportunities such as these.

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Motley Fool contributor Peter Phan owns shares in AMA Group. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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