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AB Dynamics buoyed by thirst for new car technology

Further gains from soaring research and development spend in the car industry sent shares in the testing and measurement specialist up 8 per cent
April 26, 2016

Competition among car makers to introduce the latest cutting-edge technology drove significant growth at AB Dynamics (ABDP) in the six months to 29 February. Analysts and retail investors were again left spellbound after the testing and measurement specialist delivered robust sales growth that underpinned a 48 per cent rise in operating profit to £2.3m.

IC TIP: Buy at 473p

The industry's obsession with advanced driver assistance systems was key to this outperformance. Car manufacturers have been calling on AB Dynamics to help develop new safety systems capable of displacing traditional seat belts and airbags, and have been extra keen to spend big in a bid to steal a march on competitors. The surge in demand was met by the expansion of the group's factory and hiring of extra staff. Manufacturing space is now up to 23,551 sq ft, which, together with favourable currency movements, helped to widen the operating margin.

Management is doing everything in its power to continue taking full advantage of rising research and development spend. That includes launching new products, signing a strategic partnership with Williams Advanced Engineering and putting the finishing touches on a new £6.5m factory offering an additional 33,000 sq ft of space.

Broker Cantor Fitzgerald upgraded its forecasts and now expects pre-tax profit of £4.7m for the August year-end, giving adjusted EPS of 21.6p, rising to 24.6p in 2017 (from £3.8m and 18.3p in 2015).

AB DYNAMICS (ABDP)
ORD PRICE:473pMARKET VALUE:£82m
TOUCH:465-480p12-MONTH HIGH:473pLOW: 194p
DIVIDEND YIELD:0.6%PE RATIO:21
NET ASSET VALUE:88pNET CASH:£10.1m

Half-year to 29 FebTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20157.61.57.51.10
201610.12.310.51.21
% change+34+50+40+10

Ex-div: 5 May

Payment: 20 May