Liberum ups price target on AB Dynamics following 'excellent strategic acquisition'

In Liberum's eyes, the acquisition of rFpro, a developer and provider of simulation software, for an initial cash consideration of £18.1m and £3.5m contingent was an "excellent strategic acquisition" for AB Dynamics, which designs, manufactures and supplies advanced testing systems.

Liberum, which also reiterated its 'buy' rating on the stock, said the consideration was 4.5 times that of rFpro's historic sales and 13.8 times its historic underlying earnings, but more importantly, noted that it reflected "the strategic importance" to AB of securing supply and a competitive advantage in what it expects to be "a long term high growth market".

"The high multiple in part reflects the competitive bid process as well as the longer term strategic value of the business to AB Dynamics, providing it security of supply on technology that is at the heart of its simulator," said Liberum.

"We increase FY20E EPS by 9.5%, bringing it back to the level pre the June £50m placing. With another acquisition potentially in the pipeline, there is further scope for earnings accretion," the analysts concluded.

As of 1520 BST, shares of AB Dynamics were down by 0.58% to 2,565.0p, but nevertheless remained close to their records highs.