MENU

How AB Dynamics plc looks set to outperform Sirius Minerals plc

Image: Sirius Minerals: Fair use

I can’t deny that Sirius Minerals (LSE: SXX) is a popular share on the London stock market and with good reason. The company oozes potential as it works towards becoming a world-leading multi-nutrient fertiliser producer with its polyhalite mine development project in North Yorkshire. 

However, I reckon that shares in fast-growing AB Dynamics (LSE: ABDP) in the automotive sector have a decent shot at outperforming Sirius Minerals over an investment horizon of  five years or more.

There’s many a slip between cup and lip

Sirius Mineral has bags of potential but is engaged in an expensive undertaking. The firm has jumped planning hurdles and recently raised enough funds for its stage 1 development funding via equity and bond issues. The second phase will be funded by more debt, and now the firm can sally forth on its proposed five-year mine build.

As an eventual producer, the potential of the business is huge by the firm’s own forecasts, but we’re not there yet, and it could deviate from the plan along the way. One outcome seems assured, though — share price volatility.

I last wrote about Sirius Minerals back in September when the shares were 33p. I said then that “volatility means we can’t rule out a complete reversal of Sirius Minerals’ share price gains since April.” Today the shares stand at 20p, which is where they were at the end of April so it came to pass.

Jam today (hurrah!)

Despite the firm’s potential, Sirius Minerals is a ‘jam tomorrow’ share because it has no revenues, profits or earned cash income. That’s a long way from AB Dynamics’ ‘jam today’ proposition where the firm’s share price is hitting new highs and the company posts double-digit gains in revenues and profits, although its yield is below 1%. 

AB Dynamics designs, manufactures and supplies advanced testing and measurement products for vehicle suspension, brakes and steering for the global automotive industry both in the laboratory and on the test track. Around 90% of the firm’s sales go to export for customers that include the research and development divisions of some of the world’s leading vehicle manufacturers.

The company says it’s a solutions provider to an industry continually seeking novel engineering testing answers to new technical challenges. There’s no doubt that the firm has found a profitable niche in the market if you look at its trading record. 

A striking difference

The directors are upbeat about the future saying that the firm spent more on research and development this year than in previous years resulting in an increase in the performance, quality and reputation of its products that has driven steady growth in sales. In a measure of the directors’ confidence, construction started on a new facility with completion targeted for the third quarter 2017.

AB Dynamics is profitable and growing fast. Yet one of the most striking differences between the firm and Sirius Minerals is AB Dynamics’ lack of debt. In fact, the company sits on a pile of cash that’s around £10m, which contrasts with Sirius Mineral’s vast need for finance either from shareholders, other firms or from debt.

A heads-up

I think AB Dynamics has a bright future and the investment journey could be smoother than that for Sirius Mineral's shareholders over the next few years. However, I also want to alert you to another small-cap investment opportunity that our top analysts highlight in a report called 1 Top Small-Cap Stock From The Motley Fool.

This could end up being a timely heads-up on a decent situation, so I urge you to make your own analysis right now. You can download the research free, Click here.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.