The AMA Group Ltd (ASX: AMA) share price has jumped to a record high this morning after the panel beating and automotive services group released a trading update.
The AMA share price advanced around 3% to $1.29 at the time of writing, taking its gain to nearly 50% since January when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 16%.
Investors found new reason to keep bidding the stock higher as management is forecasting an extra $120 million in revenue and $12 million in earnings before interest, tax, depreciation and amortisation (EBITDA) from recent acquisitions and Greenfields expansion of its panel beating network.
Profit upgrade
The upgrade is based on a 12-month run rate once the eight takeovers are bedded down and new shop openings (three in total) are established.
The earnings increase equates to around a 21% uplift to the group's expected EBITDA for the current financial year, which management reiterated will be around $58 million.
AMA has a good track record of growing by acquisitions under its last chief executive Raymond Malone (who has since become the executive chairman) and the group continues to show good discipline when it comes to mergers and acquisitions (M&A).
Is it time to take profit?
The average multiples paid for targets are an attractive 3.8 times earnings, although some may be concerned with the growing amount of debt used to help fund these deals.
There's also a shift in focus with the group expanding into the heavy motor space and has taken the third largest east coast consolidator.
However, its gearing levels haven't reached a point that would worry me even though it's up significantly from a year ago.
Foolish takeaway
What's more, I think a shift in the group's strategic initiative is welcomed as I have been concerned about the longer-term growth of panel beating with the impending arrival of more autonomous vehicle technologies.
The rise of cars that can automatically help drivers avoid collisions is likely to make a big dent in the industry (all pun intended!).
Also, I take comfort in the fact that Ray Malone continues to be heavily involved with the group. Often a change in leadership and strategic focus is enough to prompt many to dump the stock.
I can't tell you how many times I've regretted not selling a stock on the changing of the guards – especially when it comes to small cap stocks.
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