The Automotive Holdings Group Limited (ASX: AHG) share price could fall further today as it posted a statutory net loss after tax (NLAT) of $225.6 million and decided not to pay an interim dividend.
The AHG share price fell over 8% in one day when it announced a non-cash impairment of approximately $226 million on Wednesday last week. It will be interesting to see if this has already been fully priced into yesterday's closing share price of $1.755 given today's weak earnings result.
Unpacking the result
The company recorded group revenue of $3.22 billion which was marginally higher on $3.17 billion in the prior corresponding period (pcp) while the statutory net loss after tax (NLAT) of $225.6 million reflected the non-cash impairment mentioned above.
The news wasn't much better on underlying earnings and profitability, with operating earnings before interest, tax, depreciation and amortisation (EBITDA) down 16% on pcp to $93.4 million with an operating EBITDA margin of 2.9% (down from 3.5% pcp).
Operating net profit after tax (NPAT) of $24.2 million was nearly half that recorded in 1H18 – a worrying sign for the company going forward.
Management cited difficult automotive retail trading conditions as a driver behind the weak result, and stated it is taking the opportunity to "clean up the Company's balance sheet". This is bad news for investors, as no interim dividend has been declared in order to facilitate this clean-up, compared to a 9.5 cents per share interim dividend in 1H18.
This represents a "temporary suspension" of the existing dividend policy to payout 65%-75% of operating profit after tax while the company moves towards its target gearing range of 1.5-1.75x.
AHG recorded net debt of $284.7 million at period end and paid down ~$35 million on a normalised basis over the half.
Foolish takeaway
The company announced it has commenced a strategic review of its Refrigerated Logistics business and has appointed UBS and Luminis partners as joint financial advisers. The Refrigerated Logistics business has been a drag on growth of late and was a key reason for the $226 million non-cash impairment announced last week.
I personally think AHG has a lot of problems it needs to face, beyond just cleaning up its balance sheet. The dividend cut and ongoing headwinds in automotive retail would be enough for me to steer clear and take a look at these top growth shares that have been tipped as market beaters instead.
