Down but not out: AMA Group (ASX:AMA) share price holds amid CEO's optimism

Here's what's weighing on AMA Group's stock on Tuesday.

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Key points

  • The AMA Group share price opened 4% higher this morning before slipping below its previous close
  • The movements followed the release of the automotive repair company's earnings for the first half of financial year 2022
  • Over the six month period, its repair volumes dropped to their lowest since early 2020, plunging its profit margin into the red

The AMA Group Ltd (ASX: AMA) share price has fought back from the red after the company released its earnings for the first half of financial year 2022.

At the time of writing, the AMA Group share price is 35 cents, the same as yesterday's close. This morning, the company's shares hit a high of 36.5 cents each before dipping into the red then settling at 35 cents apiece.

Here are the highlights of the automotive aftercare and accessories company's 1H FY22 results:

AMA Group share price slips as profits tumble

  • Revenue $418.1 million ­­– down from $435.1 million in the first half of financial year 2021
  • Earnings before interest, tax, depreciation, amortisation, impairment, and fair value adjustments for continuing operations (EBITDAI) of around $2.8 million – down from $55.7 million
  • Operating loss before tax of $52.4 million – down from a $7 million profit
  • Total loss of $48 million – down from a $4.6 million profit
  • No dividend declared

The first half of financial year 2022 has hit the automotive repair service provider hard.

In fact, it saw the lowest number of repairs completed in a six month period since the onset of the pandemic due to COVID-19-induced lockdowns, restrictions, and a resulting drop in vehicle use.

According to the company, fewer repairs dinted its revenue last half while its raw material costs increased.

Additionally, its employee benefits expenses grew in the first half of financial year 2022, mainly due to the end of JobKeeper assistance.

For context, the company received $28.4 million of JobKeeper in the first half of financial year 2021.

It also reported a $16.7 million non-cash impairment expense, mostly related to its hibernation and consolidation of sites.

However, AMA Group's balance sheet is looking strong.

The company ended the half with a cash balance of $81.3 million, $8.2 million of undrawn debt facilities, and $307.6 million of net assets.

It has also paid off $175 million of debt since mid-2020, leaving it with debts of just $165 million.

The company says this leaves it in a good position to continue battling the ongoing COVID-19 impacts.

What else happened in the half?

The company's vehicle collision segment brought in $357.5 million of revenue last half – down from $380.3 million in the first half of financial year 2021.

Its heavy motor segment's revenue increased to $27.8 million – up from $25.4 million.

The company's supply leg's revenue grew around $2.5 million to approximately $42.7 million. It also began to evolve its strategy to create an integrated parts supply chain for the collision repair industry.

Meanwhile, its corporate and eliminations segment recorded a $9.9 million loss. Though, that's better than the prior comparable period's $10.7 million loss.

The company also underwent a capital raise during the half. AMA Group raised around $53 million through an institutional entitlement offer where its shares were offered at a price of 37.5 cents apiece.

A retail entitlement offer raised another $46 million at the same offer price.

Finally, the company placed $50 million of subordinated notes.

Most of the capital raised went towards paying off the company's debt.

What did management say?

AMA Group CEO and managing director Carl Bizon commented on the company's outlook, saying:

Repair volume challenges are situational, not structural. We are well placed to weather the ongoing effects of COVID and are actively tackling the industry's parts and labour supply issues.

The continued downtrend in COVID-19 cases leaves me optimistic about return to historical repair volumes.

What's next?

The company is expecting its vehicle collision repair segment to recover as vehicle use normalises post-COVID.

It's ready to hit the ground running with its workforce mostly intact despite the competitive labour market.  

Additionally, the company's heavy motor segment's future performance looks good. Its forward workbook has continuously remained strong.

However, the company's supply business has lost a complete vehicle wreck insurer agreement that brought revenue of $6 million. However, its recycling business is still going strong and its parallel import performance has improved.

The supply chain segment's new procurement business is expected to bring around $10 million of annual benefits, identified and in place for 2022.

The company is also targeting several acquisitions in collision repair and associated industries.

Additionally, AMA Group took on 71 new apprentices in January 2022. Apprentices now represent 10% of its workforce while skilled visa holders represent another 8%.

Thus, the company is expecting the reopening of Australia's borders to positively impact its workforce as it looks to hire from the international talent pool.

Looking to the company's performance for early 2022, its repair volumes are slowly recovering after the summer holidays.

However, COVID-19 is still challenging its business, with customers delaying superficial repairs.

There has also been an increase in customers not turning up for appointments due to being in isolation.

Staff absenteeism also increased to between 15% and 20% in January.

AMA Group share price snapshot

2022 has been rough on the AMA Group share price.

It has fallen around 20% since the start of this year. It's also currently 50% lower than it was this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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