AMA - Buy ?, page-2

Take into account that I am a current holder when reviewing what I write.

The automotive repairs industry is in a state of consolidation. A number of small businesses are currently being rolled up into bigger industry players that are exploiting the associated economies of scale and relationships with insurers to grow their market share.

As of mid last year there were four major players in the industry:

• Gemini

• AMA Group

• Capital SMART

• SmashCare

http://www.businessspectator.com.au.../australias-four-great-panel-beating-families

AMA Group and Gemini (to my understanding) have been the players undertaking the majority of M&in the sector. Late last year AMA Group acquired Gemini and therefore removed its largest industry consolidator competitor more than doubling its size (the transaction settled in December). It is likely the current SP reflects an expectation of the synergies available from this transaction.

The current CEO of AMA Group, Ray Malone, actually sold his business into AMA Group in 2008/09 but was concerned about the direction of the company. He effectively instigated a rolling of the board and took over management of the company. I think he has done a good job in removing the legacy issues associated with previous management and has put AMA Group on a good footing for inevitable industry consolidation (he has also been to the US and Canada to evidence what is occurring in those countries in terms of automotive repairs following large rounds of industry consolidation over there).

I think a lot of the 'gloom' about the industry is the thinking that driverless cars will lead to fewer accidents and therefore reduced demand for this industry's services. There is some truth to this however I suspect the impact of these changes will take some time to flow through given the average age of the Australian passenger car fleet is c.10 years (i.e. if there was a major take up of new driverless cars it would take some time to flow through materially to the automotive repair industry - especially to younger drivers who tend to be more accident prone and likely could not afford to buy such cars).

It might be worthwhile looking at the upcoming 1H16 results this month to see what management expects to happen since the recent acquisition of Gemini. Should also be noted that:

• Greencape Capital recently increased its holding from 5% to 6%

• Thorney Opportunities Fund has a 5% shareholding (recently reduced from 6% which I believe was the realisation of substantial capital gains to be allocated elsewhere in their portfolio).