AB Dynamics revs up

Strategy&, a consultancy firm, reckons car makers splashed out $105bn (£70.4m) on R&D in 2014, making the industry the third-biggest spender on R&D behind healthcare and technology hardware. That level of spending represents a 50 per cent increase on 2005, which the consulting firm says is driven by shifts in consumer demand, more regulatory requirements for safety and fuel economy, and the growing availability of data and information.

This backdrop helps explain AB Dynamics' meteoric rise since listing at 86p in May 2013. Between 2011 and 2014 the engineer's revenue more than doubled and operating profit quadrupled to £2.7m, buoyed by a fattening order book and its inroads into high-margin track testing sales in China.

Underpinned by safety standards legislation and a booming Asian car market, the group's high-speed driving robots now account for more than two-thirds of sales. Growth in that niche market, meanwhile, helped group operating margins to widen by 350 basis points to an impressive 19.1 per cent in the year to 31 August 2014.

Accompanying the success of its latest driving robot offering is AB Dynamics' upgraded SPMM 5000, a fixed-test machine that measurers suspension parameters. That product launch sparked its first SPMM orders from South America and adds to an expanding pipeline in growth markets across the globe.

In fact, demand has been so rampant that AB Dynamics has increased its manufacturing space by 70 per cent since listing under two years ago. A 3,500 square foot production facility was recently secured to cope with rising orders and should be sufficient to withstand growing capacity demand until the group moves into a new building at the end of 2016.

Planning permission has already been obtained for this new facility, which will enable AB Dynamics to design, develop and manufacture under one roof. A £2.3m grant that the group was recently awarded from the UK government's Regional Growth Fund will go towards the new facility.

Management also plans to invest in expanding the company's workforce of engineers and in addressing new markets. Despite these spending plans, AB is not expected to rack up any debt. Strong cash generation means broker Charles Stanley does not expect net cash to dip much below the £4m mark in the coming few years, despite forecasts of a substantial increase in capital expenditure to £2.5m in the current year followed by £3.5m in 2016 before spending moderates to £2m in 2017.