The AMA Group Ltd (ASX: AMA) share price is the worst performer on the All Ordinaries index on Wednesday.
In afternoon trade the smash repair company’s shares are down a massive 30% to 34 cents.
Why is the AMA Group share price being smashed?
Investors have been heading to the exits in their droves following the release of its half year results this morning.
For the six months ended December 31, AMA delivered a 32% increase in revenue to $396.1 million. This strong top line growth was driven by the acquisition of the Capital Smart and ACM Parts businesses from Suncorp Group Ltd (ASX: SUN) last year.
This acquisition combined AMA’s industry-leading platform and Capital Smart’s best-in-class capabilities in low to medium severity panel repairs. It also included a long-term service agreement under which Capital Smart remains Suncorp’s recommended repairer.
Things weren’t quite so rosy on the bottom line, though. AMA recorded a disappointing first half loss after tax of $11 million, down from a profit of $10 million in the prior corresponding period.
Management advised that this reflects the current challenging market conditions it is facing. These include declining repair volumes, pressure on pricing, and the costs associated with new vehicle technologies such as Advanced driver-assistance systems.
In addition to this, the company’s automotive parts and accessories division has been impacted by a pronounced year-on-year decline in new car sales, which is impacting the industry as a whole.
As a result of its poor half, the AMA board has decided to suspend its interim dividend.
The company advised that its vehicle panel repairs division has adjusted to the changing conditions with cost saving initiatives. It is also offering additional on-site automotive services to customers, focusing on acquiring profitable regional and prestige shops, and taking on more complex repairs to fill the decrease in rapid volumes.
In light of this, the successful integration of Capital Smart and ACM, an uplift in pricing from insurers, and forecast earnings from recent acquisitions, management believes it is well-positioned for a strong second half.
As a result, AMA continues to expect to deliver normalised EBITDAI in the range of $73 million to $77 million in FY 2020. This implies second half EBITDAI of at least $51.3 million, up from $21.7 million in the first half.
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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.