Berenberg starts AB Dynamics at 'buy', sees long-term growth drivers intact

Analysts Berenberg initiated coverage on AB Dynamics at 'buy', telling clients the recent sharp drop in the shares provided a "compelling entry point" given the strong balance sheet and valuation discount versus peers.

"With the shares down by c40% in the past six months, there is now a compelling entry point into a multi-year compounder. We initiate coverage with a Buy rating and a 2,050p price target."

The global leader in automotive testing systems had generated a compound annual rate of organic growth of 14% over its 2020-22 financial years with operating margins and a return on invested capital of 23.3% and 25%, respectively, in FY 2021.

It also had £35bn of net cash on hand and enjoyed strong pricing power, barriers to entry and a strong brand.

Furthermore, the long-term structural growth story remained in place, with significant opportunities in the autonomous vehicle space.

"We believe consensus is underestimating the medium-term margin-progression story and our FY 2022 EBIT margins are 70bp ahead."