Ann: Appendix 4E and Annual Report-AMA.AX, page-33

Essentially three of the five reasons are saying the same thing in different ways - AMA is acquiring growth.

The blurb from the IBISWorld report being quoted as the first ownership reason (a defensive industry) paints a different picture to what Cyan IM says:

"The [Repair] industry mostly relies on vehicle accidents to generate revenue. Over the past five years, a combination of safer new vehicles and more risk-averse drivers has reduced vehicle accidents and limited industry revenue growth. Robust sales of new passenger vehicles means that more consumers are driving vehicles with modern safety features. As fewer consumers have traded in or disposed of their older vehicles, the average age of the domestic vehicle fleet has increased marginally over the past five years. However, the increasing modernity of the vehicle fleet has meant that more vehicles on the road have improved safety features, which has reduced the likelihood and severity of road accidents..."

Essentially any gains in pricing are being largely offset by decreasing volumes of work and less severe crashes. Five years ago there were 6,000 smash repair shops. It is now about 3,500. If the Australian industry consolidates to a level similar to its overseas peers there will probably be 1,000 to 1,500 left when all is said and done. I suspect a lot of those businesses that will leave will be small shops where the real value in the business is having the freehold in the property they trade from - not the business itself.

Also needs to be remembered that Suncorp, whilst wanting a more efficient industry (ownership reason no. 2) actually have their own smash repair business so all the benefits wouldn't flow through to AMA.

AMA has a good story to sell about consolidating a largely cottage industry, which insurers have tried to make efficient before but failed (e.g. IAG tried to bring in an online bidding system for work in 2007 but Alan Jones launched a campaign on his radio show to stop it), however I think:

* there aren't Gemini sized businesses left to make the roll-up program as quick as has been achieved in the last 18 months (though it has made it a lot harder for someone else to enter the market as an industry consolidator)

* future roll-ups will be smaller businesses (unless Suncorp sold-out) meaning AMA either needs to integrate more businesses more quickly to keep program pace (which increases integration risk), acquire at a slower rate or establish greenfield sites in areas where there isn't a competitor offering sufficient site scale to acquire

* there is still the risk of future equity placements to acquire businesses and sites which would dilute ownership.

To my mind if you model:

* what the P&L might look like when the roll-up program is finished

* what EV and SP would look like in this scenario

the SP already factors a lot of this growth in today and the gap between today's SP, what the 'terminal' SP looks like (before focus turns primarily to GM% and opex for profit improvement) and the potential time it might take to get there puts capital gain growth in the high single digits (before taking account of execution risks and potential equity placements or issues for acquisitions).

There doesn't appear to be any margin of safety to my mind.