The United States is a nation of car lovers, with nearly 300 million vehicles on the road, which is almost one per person. The National Highway Traffic Safety Administration is responsible for ensuring those cars are safe. As a federal agency, the watchdog has serious work to do. And it uses AB Dynamics, based in Bradford-on-Avon, to ensure the job is done right.
Founded in 1982, AB dynamics has become a global leader in vehicle testing systems and equipment, from car-driving robots to sophisticated simulation software that replicates real-life conditions.
In most cases, the company sells products and technology to automakers and testing specialists. But CEO James Routh also runs a track in California, which uses his company’s devices to test vehicles on behalf of customers. And that includes the US safety regulator.
Business is going well across the group. When Midas recommended AB Dynamics in 2015, shares were worth £2.34, annual sales were £16.5m and profits were £3.7m. Since then, turnover has increased six-fold, profits have more than quadrupled and the shares have soared to £17.75. The number of employees has also skyrocketed, from fewer than 70 nine years ago to around 500 today.
Routh believes there is a lot more fuel in the tank. A chartered engineer by training, he joined in 2018 with the mission to expand and professionalise the business, entering new markets, adjusting systems and processes and increasing the amount of cash generated from recurring sales. Progress has been made on all fronts and Routh now expects to make good progress, more than doubling the business in the next five years.
Drive: AB Dynamics has become a global leader in vehicle test systems and equipment
Your ambition is not just an illusion. The automotive industry is changing rapidly as cars become more complex, electric vehicles enter the scene, and safety regulations intensify.
In 2015, the Euro NCAP star rating system conducted fewer than 80 tests on cars before determining their safety profile. There are now 590 tests and the number is expected to rise to 700 before long. The tests are also more complicated. Self-driving cars may be a few years away, but assisted driving is all the rage, from obstacle alerts to cruise control and automatic braking.
Each of these functions needs to be tested and the AB Dynamics kit is considered among the best on the market, with the ability to check how cars behave in millions of scenarios and even how the sensors are affected by sunlight in different times of the day.
The company is also entering a new area, developing technology that allows mining companies to retrofit trucks with robots for use in difficult or dangerous conditions. The robots are controlled by mining personnel and commercial sales are expected to begin later this year.
Brokers expect an 8 per cent rise in sales to £109 million in the year to August, with profits up 7 per cent to £17.4 million and a dividend increase of 6 .4p to at least 6.8p.
Midas Verdict: AB Dynamics shares have risen more than sevenfold in the last nine years and now could be a good time to take some profits. But, like Synectics, this fast-growing British technology company is winning customers around the world and Routh is a determined operator. At £17.75, the shares should still reward long-term investment.
Traded in: AIM Heart: ABDP Contact: abdynamics.com or 01225 860200