The Automotive Holdings Group Ltd (ASX: AHG) share price is down 60% this year thanks to the Royal Commission and other factors.
Automotive Holdings Group is one of the largest car dealership businesses in Australia, it also has a substantial refrigerated logistics business.
New car sales are being hit hard in the face of falling asset prices and the Royal Commission. People supposedly like to spend money when the value of their property goes up, so the opposite could be true – people shut their wallets as the house price falls.
The Royal Commission has forced banks like Commonwealth Bank of Australia (ASX: CBA) to have a good look at the loans they're giving out. With households already heavily indebted people are finding it difficult to borrow for an asset that rapidly depreciates in value as soon as you drive it away from the dealership.
AHG recently updated the market with a trading update to say that nationwide car sales were down 1.3% year on year and down 5.3% month on month.
New car sales are a good proxy for the feeling of the housing market. It doesn't look good.
In the first four months of FY19, AHG's operating net profit after tax (NPAT) was down by 45.1% to $11.7 million. Management are predicting a full year operating NPAT of $56 million to $59 million in FY19.
The trailing grossed-up dividend yield looks like a monstrous 16%, but it wouldn't be at all surprising to see the dividend cut along the same lines as the drop in operating NPAT, so the forward grossed-up dividend yield for FY19 is probably closer to 8% or 9%.
Until car sales turn around I don't think AHG will be a good market-beating idea, even if it is trading at below 10x FY19's estimated operating earnings. I believe there are better ASX investment ideas than AHG out there.
