Ann: Appendix 4E and Annual Report-AMA.AX, page-29

"....it is indeed a very interesting point. Is anyone familiar with the industry and know how many more repair shop chains are likely to be swallowed up?"

Great question @tango41, because if one can be comforted that there is still significant scope for sensible industry consolidation, then AMA - as the leading aggregator - could still have some room to hoovering up other people's earnings for some time to come.

But I am no aficionado on the structure, dynamics and other fundamental aspects of the auto repair industry in Australia.

The only value that I can add is to look at AMA's current Revenue run rate which is currently around some $330m, and to say that I assume that the size of the vehicle repair industry is distinctly larger than that, based on this dated Deloitte Access Economics report I found online, which showed that the value of the total vehicle repair market was around $5.2bn in 2011, having contracted by almost 20% over the preceding decade, with no rebound over the next 3 years being forecast at that time:

https://www.deloitteaccesseconomics.com.au/uploads/File/Smash repair final report 241011.pdf


So, AMA currently play in circa $330m of a field that is ~5.0bn total, so around 7% of the total market (Interestingly, the DeloitteAccessEcomonics report makes much mention of high degree of industry fragmentation and at the time of the publication the report makes reference to no single entity having a market share of more than 1% (Based on AMA's 2013 Revenue, it represented around 1.3% of the market at the time).

So, while it looks like the TOTAL market size is way bigger than where AMA finds itself today, the real question is what is the company's ADDRESSABLE market (because there are always structural limitations on how big companies, who are consolidators of industries, can become.

My experience is that 30% market share via aggregation strategy is some sort of natural cap, based on precedent. But let's be even more conservative, and say that AMA reach 20% (which is not insignificant, and also not that easy to achieve).

On that basis the company will have Revenues of around $1.0bn, and based on current EBIT margin of 6.5%, that implies $65m of EBIT (compared to the current $20m run rate).

Capitalising that sort of prospective EBIT on a private equity-style FCF yield buyout ratio of around 8%, (i.e., an EV/EBIT of 12.5x ...which, incidentally works out to an EV/EBITDA multiple of 8.6x based on the current rate of Depreciation-to-Revenue metrics), that translates into an Enterprise Value of around $800m, compared to today's $490m-odd.

So, provided they can go about their industry consolidation thing without behaving like drunken sailors in terms of paying up for stuff, I can understand why this might have investment appeal to some people.

Whether it is something I have a burning desire to be a part of, we'll, I need to contemplate my navel a bit more.