Our 12-month target price of $12.35 is derived by rolling forward our blended valuation at the cost of equity, less the next 12 months of dividends to be paid. Our blended valuation is the rough average of the following three valuation methodologies:


• DCF valuation of $8.20;


• PE valuation of $13.30; and 


• Sum-of-the-parts valuation of $11.90.


Our DCF valuation is derived using a beta of 1.1 and a WACC of 13.1%. We use a risk-free rate of 4% and a terminal growth rate of 3.8%.

In our PE relative valuation, we value Amotiv in line with the ASX 200.


Our SOTP valuation is derived by comparing Amotiv with Australian auto peers. We apply a 20% discount to peers in our SOTP valuation  taking into account a more uncertain consumer outlook and additional costs around supply chain re-engineering. 

Primary risks to the stock achieving our target price include, but are not limited to, the following: i) volatility in interest rates and currencies (on hedged and unhedged positions); ii) weak consumer confidence and macro-economic conditions in Australia that may impact Amotiv's businesses; iii) access to credit (creating new and rolling existing facilities); iv) regulatory risk from changes in government policy; v) compliance with industry standards (eg, OH&S, ISO); vi) general volatility in economic conditions that may inhibit acquisitions and divestments; and vii) further delay in OEM supply normalisation.


We also see the following company-specific risks to achieving our target price: i) margin pressure in the Automotive segment, despite Amotiv's ability to defend it historically; ii) not getting the traction expected from the recent catalogue releases; iii) slower-than-expected transition of the business further towards automotive; and iv) dis-economies in Amotiv’s supply chain from divestments.


If the impact from these factors proves to be greater than anticipated, then the stock may have difficulty in achieving our target price. However, should the impact be less than anticipated, the stock could trade above our target price.