MIDAS SHARE TIPS UPDATE: Car testing firm AB Dynamics is still driving forwards

The US is a nation of car lovers, with nearly 300 million vehicles on the road, equivalent to almost one per person. The National Highway Traffic Safety Administration is responsible for making sure those cars are safe. As a Federal agency, the watchdog has a serious job to do. And it uses Bradford-on-Avon based AB Dynamics to ensure that job is done properly.

Founded in 1982, AB Dynamics has become a world 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 carmakers and testing specialists. But chief executive James Routh also runs a track in California, which uses his firm’s gadgets to test vehicles on customers’ behalf. And that includes the US safety regulator.

Business is brisk across the group. When Midas recommended AB Dynamics in 2015, the shares were £2.34, annual sales amounted to £16.5 million and profits were £3.7 million. Since then, turnover has risen sixfold, profits have more than quadrupled and the shares have soared to £17.75. Employee numbers have rocketed too, from less than 70 nine years ago to around 500 today.

Routh believes there is plenty more fuel in the tank. A chartered engineer by training, he joined in 2018, with a mission to expand and professionalise the business, moving into new markets, tightening up systems and processes and increasing the amount of cash generated from recurring sales. Progress has been delivered on all fronts and Routh now hopes to move forward at pace, more than doubling the business in the next five years.

Drive: AB Dynamics has become a world leader in vehicle testing systems and equipment

His ambition is not just wishful thinking. The automotive industry is changing fast, as cars become more complex, electric vehicles enter the picture and safety regulations intensify.

In 2015, star-rating system Euro NCAP ran fewer than 80 tests on cars before determining their safety profile. Now, there are 590 tests and the number is expected to climb to 700 in short order. Tests are more complicated too. Driverless cars may be some years away but assisted driving is all the rage, from obstacle alerts to cruise control to automatic braking.

Each of these functions needs to be tested and AB Dynamics’ kit is considered among the best in the market, with the ability to check how cars perform in millions of scenarios and even how sensors are affected by sunlight at different times of day.

The firm is moving into a new area too, developing technology to allow mining firms to retrofit trucks with robots to be used in difficult or dangerous conditions. The robots are controlled by mining staff and commercial sales are expected to start 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 an increase in the dividend from 6.4p to at least 6.8p.

Midas verdict: Shares in AB Dynamics have risen more than sevenfold in the past nine years and now might be a good time to take some profit. But, like Synectics, this fast-growing, UK technology firm is winning customers worldwide and Routh is a determined operator. At £17.75, the shares should still reward long-term investment.

Traded on: AIM Ticker: ABDP Contact: abdynamics.com or 01225 860200

This post first appeared on Dailymail.co.uk