Should you buy shares in Automotive Solutions Group Ltd IPO?

Automotive Solutions Group Ltd (ASX: 4WD) is expected to list on the ASX on December 16, but investors can apply to buy shares in the IPO from November 28.

What does Automotive Solutions do?

Automotive Solutions manufactures and supplies 4WD and sports utility vehicle (SUV) aftermarket parts and accessories. That includes everything from awnings, bull bars, camping equipment, fuel and water tanks, mechanical parts, roof racks, trays and vehicle lighting.

However, the newly formed company will be a combination of three manufacturing and distribution businesses and five retail sales and performance businesses. Those enterprises and brands include Barden Fabrications, Uneek 4X4 offroad, Umhauers, Roo Systems, Transpec 4X4, Alloy Motor Accessories (AMA), Dolium, Deering Autronics and JDR Motor Sport.


It’s clear that there are some significant tailwinds in the sector, with rising demand for SUVs and 4WD vehicles even for Australian city dwellers. Sales of SUVs are growing at double-digit rates, and there’s a growing population of ‘Grey nomads’ – those older Australians travelling around the country.

That makes for a highly valuable aftermarket industry for 4WD accessories and aftermarket modifications.


The group’s main competitor is ARB Corporation Ltd (ASX: ARB), which manufactures and sells products for 4WDs and SUVs, with a retail network of more than 150 stores across Australia. Other competitors include Bapcor Ltd (ASX: BAP), Arrowcrest Group, Ironman 4X4 and TJM.


The IPO offer price of $1.00 looks cheap when you consider the prospectus says the offer price equates to a P/E ratio of just 10.5x based on pro forma 2017 financial year earnings. Enterprise Value to pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) also looks decent at 7.5x.


The risks are many, none more so than the fact that the company is untried and untested, and is a combination of eight separate businesses. It may take some time to get the eight businesses working as one, not to mention finessing the logistics and inventory management. The good news is that the acquired businesses will be purchased on an average multiple of 4.4x EBIT, which appears a good price to pay.

Foolish takeaway

Given the risks, the price does appear reasonable, but it’s not for me. I’d like to see how the company performs as a listed entity for a few years first before I’d consider investing my hard earned into it.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

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Motley Fool writer/analyst Mike King owns shares in Bapcor. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia owns shares in Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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