AB Dynamics reports growth in revenue and profits

AB Dynamics (ABDP), the company used by carmakers to test new vehicles, grew revenue and adjusted profit by more than a fifth in the year to August 2023, although Ansible Motion – a simulator company acquired at the start of the year – did most of the heavy lifting. 

It provided £11.8mn of the £17.6mn of the additional revenue earned by AB Dynamics, and £2.4mn of the £2.9mn of adjusted operating profit. AB Dynamics ended up settling on a £23.8mn fee for Ansible, which was much lower than the maximum amount of £31.2mn that would have been due if all targets were hit. 

AB Dynamics’ operating margin only edged up by 10 basis points to 16.5 per cent, though, as the ABD Solutions business that is still in development phase sucked in a further £1.8mn in funding. This division is developing driverless systems for off-site vehicles in areas such as mining and defence, and is now moving towards commercialisation. It recently won a £1mn contract to retrofit construction machines with a pedestrian detection system.

Cash generation was strong, with the company finishing the year with net cash excluding leases of £32mn – up £2.8mn on the prior year, even after shelling out £14.4mn upfront for Ansible Motion.

Prospects remain upbeat, with the company reporting an “encouraging” start to its current financial year. 

AB Dynamics' share price has been flat over the past 12 months and, with earnings per share increasing by 28 per cent, its valuation is “much less daunting” than it once was, analysts at Stifel argued. At 28 times forecast earnings, the shares trade well below their five-year average of 34 times. Buy.

Last IC View: Buy, 1,735p, 25 Apr 2023