The largest auto dealership company in Australia, Automotive Holdings Group Limited (ASX: AHE), has been very active with its expansion program over the past two years. It now controls a network of 169 dealerships across the country.
It's a stable, thriving business, but for more diversification the company has acquired other transport companies to become the market leader in refrigerated interstate transport and warehousing to the food industry. To complement that, it also operates a number of car and truck parts distribution businesses, so the company in total is quite comprehensive for products and services.
The stock is down about 4.5% over the past twelve months, worse than the 0.7% decline of the S&P/ASX 200 Index (INDEXASX: XJO) over the same time. Despite that, this year was good for the company as it produced a 17% gain in net profit, in part thanks to its steady growth through acquisition.
The low interest rate environment favours the company, making it cheaper for consumers to buy or lease vehicles. However, the best case scenario for higher revenue and earnings is if the economy in general were to pick up.
The company has more room to grow and is steadily acquiring single and private group dealerships that possibly are not doing as well as this market leader. Like in many industries, the companies with the deepest pockets can survive the best when conditions are not ideal. In addition, it can afford to buy out competitors if the opportunities become available.
Consensus forecasts have earnings growing around 8% annually over the next two years and dividends could rise slightly higher than that as well. Currently, the stock pays a fantastic 6.2% yield fully franked – better than all of the big four banks! Long-term investors can have a great yield now and attractive profit growth potential over the years to come.
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