The Automotive Holdings Group Ltd (ASX: AHG) share price fell 2.5% to $2.32 in Tuesday morning trade, following the release of a trading update for FY19.
Profit downgrade
This morning Automotive Holdings announced that it expects FY19 operating net profit after tax to be around $50 million. The forecast is based on the company's trading performance for the 10 months ended April 2019 and on current market conditions.
The revised guidance is around 7% lower at the midpoint than the $52 million to $56 million forecast the company had announced to the market back in February. Today's update reflects the difficult operating conditions in franchised automotive retail volumes and margins in conjunction with weaker than expected April performance from the company's Refrigerated Logistics division as a result of soft Easter trading.
Automotive Holdings also noted that May and June are typically higher profitability months in the automotive retail sector and these 2 months will have a substantial impact on the company's final FY19 numbers.
Receivables write down?
Furthermore, following an upgrade to its Refrigerated Logistics division's financial reporting systems, the company is also undertaking a review of the carrying value of receivables generated in FY19 and in prior years. The review is ongoing and its financial impact is yet to be determined. However, Automotive Holdings did note that this may result in a write down of the division's receivables generated across one or more periods.
The company currently expects that any potential financial impact would be immaterial to its balance sheet or future cash flows beyond FY19 but may have a bearing on its earnings outlook for FY19. The review and trading update is not expected to have any impact on the takeover bid from AP Eagers Ltd (ASX: APE).
Takeover
Last week, AP Eagers announced that it will improve its all-scrip offer to 1 share for every 3.6 AHG shares after previously offering 1 share for every 3.8 AHG shares. The deal is still subject to regulatory approval from the ACCC and if approved the merged group is projected to have a market capitalisation of around $2.3 billion.
The takeover offer comes after Automotive Holdings has had a difficult couple of years and its share price has fallen substantially after hitting a high of $5.00 in 2016.
