Should you buy Automotive Group Holdings Ltd to drive your portfolio higher?

Automotive Group Holdings Ltd (ASX: AHE) describes itself as Australia’s largest automotive retailing and logistics group. In other words the group owns 152 car and truck franchises operating from 87 dealerships across Australia and New Zealand.

Automotive Group Holdings has just released record half-year results which show a 6.8% rise in revenue to $2.32 billion and a 2% rise in operating net profit after tax (NPAT) to $39.3 million. The NPAT equates to operating earnings per share (EPS) of 14.7 cents per share (cps) and the board has declared an increased fully franked dividend of 8.5 cps, up from 8 cps in the prior corresponding period. For shareholders, the dividend is payable on 3 April, with a record date of 18 March.

The highlight of the record result was the strong performance from the Automotive Retailing division which increased revenues by 8%. This growth was achieved via acquisitions of dealerships and also thanks to ‘greenfield’ developments. The smaller Logistics division put in a credible result in the face of a challenging period which included flooding in Queensland and NSW and drought in the Riverina.

The group’s major listed competitor is AP Eagers Limited (ASX: APE) which also happens to own 19.6% of AHG. AP Eagers is due to report its results on 26 February and has already informed the market that it too will be a record profit result.

Foolish takeaway

Automotive Group Holdings continues to find ways to grow its earnings which in the coming period will also benefit from the rights to distribute the Husqvarna motorcycle brand. While complex, it is likely that the sad collapse of Australian car manufacturing will ultimately lead to lower price foreign made cars. This should encourage more new car sales and could be a boon for car dealers.

With the share price at $3.64 just after the results release, on an annualised operating EPS basis the stock is trading on a price-to-earnings ratio of 12.4 – it looks like a pretty reasonable price to pay.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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