Cars Can Sell, Really

By Glenn Dyer | More Articles by Glenn Dyer

Perth-based car dealer, distributor and logistics group, Automotive Holding slipped through a solid net interim earnings report last week, plus a further move to expand its base in Perth and in the very competitive Sydney market.

That leave it close to boosting revenues from all its businesses to around $2 billion in a full year: not bad going in a half that was still impacted by high, though declining petrol prices and a new car market which showed a distinct bias towards smaller, fuel-efficient models all year.

Further, while the company does have a spread of dealerships from local to foreign, it is represented in the large six cylinder locally-made area of Ford and Holden in Perth and Sydney.

The Ford Falcon wasn’t a strong performer in the half nor was the Holden Commodore, despite the expensive launch of the new model.

AHE’s involvement with small four cylinder imports from Japan and Korea were very helpful in offsetting the impact of the downturn in the six cylinder market. Some of its dealerships are in Toyota, Suzuki, Kia, Mazda, Nissan, Subaru and Volkswagen.

It has Mitsubishi dealerships and the six cylinder locally-made Magna successor, the 380 sedan hasn’t been a big seller either.

AHE last week said net profit hit $11.9 million in the six months to December 2006, a rise of 25.3 per cent on the previous corresponding period.

Revenue rose 17.8 per cent to $936.5 million and earnings before interest, tax, depreciation and amortisation jumped 28 per cent to $32.2 million. EBITDA margin edged up to 3.44c in the dollar from 3.16c. (up 28.3 per cent)

Earnings per share were 8.5 cents and the directors have declared an interim dividend of 5 cents per shares (2005: 4 cents).

The automotive side of the business generated sales of $814 million, up 18.7 per cent and EBITDA of $13.8 million, up a slightly slower 17.9 per cent.

The increase in revenues came from the McGrath Lander acquisition in Sydney and the expansion into New Zealand.

The logistics business (Rand Transport, Amcap car parts and KTM motorcycle distribution) had revenues of $122.4 million, up 12.3 per cent and EBITDADA of $4.5 million, up 12.5 per cent.

The company said the highlights of the half year were the completion of the McGrath Lander acquisition in Sydney, New Zealand acquisitions completed, businesses integrated, continued strong performance and organic growth from WA operations; the first automotive retailing acquisition in NZ – Ford and Mazda; completion of major truck dealership complex in Dandenong, Victoria; the sale of PAA dealerships in WA in line with prospectus comments (more of that shortly).

As well, strong contributions from Amcap and Rand; increased business on eastern seaboard; major new contracts secured for Rand cold storage/distribution facility at Homebush NSW; KTM’s increased performance on last year despite strong competition; expansion into New Zealand through KTM distributorship.

The Rand Transport cold store at Homebush will be completed this month and already 90 per cent capacity at Rand cold store has already been committed under contract; major expansion of Rand Transport operations in Queensland and along eastern seaboard; expanding Amcap distribution facility at Welshpool in WA by 4,000 square metres.

Then two days later AHE said it had completed the planned acquisition of the remaining 39.7 per cent of the Perth Auto Alliance (PAA) from Ford.

“The PAA comprises 3 Ford dealerships in the Perth metropolitan area, where AHE also operates a further two Ford dealerships. The acquisition is the final part of a wider transaction with Ford under which AHE had the option to acquire 100% of the PAA.

“The purchase consideration was $15.1 million. Completion of the acquisition will eliminate the majority of the outside equity interest in the Group’s financial statements.”

And it had moved deeper into the Sydney market with the acquisition of the Lansvale Holden dealership in the south western suburbs of Sydney.

The dealership is based on the on Hume Highway, adjoining AHE’s existing automotive retailing operations in Liverpool.

While management sees synergies from the co-location, it and the Perth move represent a deeper involvement with the local car making giants, even if they also have significant imports of smaller and medium-sized vehicles.

Possibly the only question mark for AHE is the future of the local operations of Mitsubishi, although it to has large and growing imports of cars like the Colt and four wheel drivers.

AHE shares finished at $2.89 on Friday, just 10c under the all time high of $2.99.

Like Super Cheap, Qantas, Virgin Blue and Adtrans, AHE is as much a play on car sales as a proxy for oil and petrol prices. So it pays to watch oil and petrol prices as much as car sales and other indicators.

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About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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