Car insured with AAMI, GIO, Bingle? Guess who’ll fix your next prang
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Insure your car via AAMI, GIO, or Bingle? If you have a ‘bingle’, chances are you could end up having it repaired by AMA Group (ASX:AMA).
Never heard of it? Well, the ASX-listed auto repair group has just outlaid the best part of $400 million for two units of insurance giant Suncorp (ASX:SUN) involved in auto repair and parts.
The deal comes with a kicker, with AMA to undertake repairs for Suncorp car insurance clients for at least the next 25 years.
That means extra volumes through the expanded AMA repair network.
Suncorp takes care of an estimated 180,000 repairs annually and once the deal with AMA is done, the enlarged entity will handle an estimated one in ten of all metro accident repairs.
And cost-savings from eliminating the doubling up of activities between AMA and the Suncorp repair yards is estimated at as much as $17 million a year, adding to the potential value of the deal.
Ray Malone, who built AMA group from a $20 million market minnow just over a decade ago to the $800 million it is valued at today, has had a stated ambition for some time of building the group to annual revenues of $1 billion — twice the level touched a year ago.
It hasn’t all been plain sailing, though, with the tax office crash tackling the planned $500 million sale of its panel beating arm last year. Since then, AMA has kept its cheque book open, buying the odd panel beater, to improve returns as it waited to hook the motza deal with Suncorp.
Pressure for rationalisation in the smash repair industry remains acute, as insurers push to rein in rising repair costs, which feeds straight through to sky-high insurance premiums.
AMA’s growth ambitions has paid off for investors, with its share price rallying from around 85c at the start of the year to peak at close to $1.50 mid-year before easing back.
Part of the money needed to pay for the Suncorp deal was raised by issuing shares at $1.15; a handy discount to the share market price of closer to $1.30 before the deal was disclosed.
Since share market trading resumed earlier this week, as AMA passed the hat around institutional investors to raise part of the acquisition costs, its shares have ticked back above $1.30.
And the move to bulk up its panel beating division has cheered analysts with some raising their share price target for the company.
Bell Potter, for example, has hiked its 12-month price target for AMA shares to $1.65 from $1.50 before the deal was done.
“We first bought AMA based on its ability to expand its panel beating network through new site roll-outs, coupled with potential acquisitions, utilising its scale and efficiency to drive operating leverage and improve margins over the medium term,” institutional investor WAM Research, which is part of Geoff Wilson’s group of listed investment companies, told clients in a note.
“We continue to hold AMA as we believe it will continue to enjoy strong synergy benefits from this acquisition and position itself for future growth expansion.”
The Myer family also has a large investment in AMA Group, following an earlier sell-down by Malone of part of his holding in the company.