Shares of Automotive Group Holdings Ltd (ASX: AHG) have fallen 11% since the beginning of June and could be worth a second look for investors.
The Perth-based Automotive Group is the country's largest automotive dealership group with plans to continue aggregating in what is a somewhat fragmented market.
Indeed, the company's latest move was to acquire three Mercedes-Benz dealerships, together with an autobody repair business, for a total price of $58 million. Acquisitions such as these have made the group's growth possible, and will continue to be an important element to its success in the future.
During the 2014 financial year, the company generated a whopping 81% of its earnings before interest and tax (EBIT) from its automotive retail division, but Automotive Group also owns a cold storage logistics business, and a mix of 'other logistics' businesses. These accounted for roughly 9.5% of EBIT each during 2014 and should both benefit from improvements in efficiencies in the coming years.
Should you buy?
Given the stock's heavy fall over the last six weeks or so, Automotive Group Holdings could certainly be one for investors to consider.
The company is set to benefit from budget tax breaks handed down by the coalition government which gives small business owners the ability to immediately write-off purchases up to $20,000 (including motor vehicles used for business purposes). That is likely to have been a contributing factor behind the earnings upgrade from fellow car retailer AP Eagers Ltd (ASX: APE) on Thursday.
Better yet, the company is expected to distribute a total 22 cents per share in dividends for the 2015 financial year, putting it on a fully franked yield of 5.3% (7.6% when grossed up for tax credits). It's going to be tough to beat that yield in this low interest rate environment!
