Progressive Equity Research: Ab Dynamics

Easy as ABD

Growth Underpinned by Excellent Long Term Drivers

Interims saw AB Dynamic’s (ABD) revenue growth accelerate to 39%, comfortably beating our forecast. While the benefit to profits was offset by higher than expected opex in 1H, most of the cost overrun was due to fx and relocation expenses. Consequently, we lift our FY18E and FY19E profit forecasts by 5% and 7% respectively. With the company also “hopeful” of signing its first aVDS customer, and growth underpinned by carmakers’ rising R&D investment into autonomous driving, long term prospects look excellent.

▪ Healthy financial headlines. Revenue rose 39% yoy to £15.3m, predominantly driven by Guided Soft Targets (GSTs) and Asian markets (see pg. 2). Whilst this outperformance was entirely offset by higher opex in 1H (reported PBT of £2.9m was in-line with our estimates) this included £0.5m of fx and relocation costs. A working capital inflow and lower capex saw the company return to FCF generation.

▪ aVDS advancing. The company signalled increasing confidence in signing its first aVDS (advanced Vehicle Driving Simulator) customer, although was understandably cautious about giving further details. A breakthrough here could be significant both strategically, creating testing synergies with its existing lab and track products, and financially. Our revised forecasts (see below and pg. 3), which only factor in one sale in FY19 and two in FY20, could prove conservative.

▪ Raising forecasts. We lift our FY18E revenue forecasts by 7% and FY19E by 3% to reflect additional GST revenue. Some of this upgrade is offset by higher opex assumptions but our adjusted EPS increases by 5% in FY18 and 7% in FY19. Our FY20E forecasts remain relatively unchanged at this time (see pg. 3).

ABD looks set to continue to benefit from excellent long-term growth drivers. The shift to safer and more autonomous driving requires cars equipped with multiple sensors, these sensors must be tested and, as a consequence, carmakers R&D spending in this area is rising (see A Dynamic Performance: Mar-18). Supporting this growth will require investment, but with the shares up nearly twelvefold from its IPO, ABD’s investors have been handsomely rewarded for their patience thus far.

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