Devastated: Automotive Solutions Group Ltd share price dives 57% after downgrade

The Automotive Solutions Group Ltd (ASX: 4WD) share price fell 57% to $0.33 this morning, after the company announced a downgrade to its full year profit estimates.

Automotive Solutions share price since listing (source: Google Finance)

Due to higher competition in Victoria, deferred or postponed customer orders in the steel business, a weaker 3rd quarter in the Roo Systems (diesel performance enhancement) business, and increased investment in marketing, Automotive Solutions was forced to downgrade its full year outlook.

Instead of the previous prospectus guidance of $21.5 million in revenue and $3.3 million in Earnings Before Interest and Tax (EBIT), the company is now expected to record revenue of between $15 million and $16.5 million, and EBIT of $0.8 million to $0.9 million.

That reflects a ~70% decline in EBIT compared to the company’s prospectus. Based on these it numbers it looks as though the business could well be unprofitable over the full year, although management expects to post another update within two weeks. It is not clear yet whether the impact is structural or cyclical and management expects to update the market on that soon also.

It’s not a good look for the company so soon after it joined the ASX in January and I expect it will be an uphill battle to convince the market to revalue the business.

There are several initiatives in the pipeline that could potentially boost sales and reduce costs, and management expects business to pick up in the first half of 2018. With the ability to grow the number of stores under its brand, Automotive Solutions could grow its market share over time. Thus while today’s update is obviously a bit of a disaster, there is some cause for optimism.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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