When searching for the best UK shares to buy now for my portfolio, I look for two things. A unique business that moves the world forward through innovation, and a great share price.
And I think I may have just found a potential candidate. Let’s take a look.
A leader in vehicle testing
AB Dynamics (LSE:ABDP) is a vehicle testing company that serves the global automotive industry. It designs, manufactures, and supplies advanced testing systems and measurement equipment to vehicle manufacturers.
The business has two departments. Track Testing is the larger of the two, generating nearly 84% of total revenue. Using its technology, vehicle dynamics, autonomous systems, and advanced driver assistance systems (ADAS) can be put to the test. In other words, the company verifies the performance of new vehicles and ensures that self-driving cars don’t bump into people.
The second business segment is Laboratory and Simulation testing. It serves a more niche (but essential) sector of the automotive industry. The firm uses specialised software to create accurate assessments of noise, vibrations, and kinematics of vehicle designs. This process ensures that new vehicles comply with regulations as well as identifying potential problems before any stage of manufacturing begins.
With various forms of self-driving technology becoming more widely available, these services are subsequently becoming more essential. This is a key trait I look for when searching for the best UK shares to buy now. But there are risks to consider.
The risks of a shifting landscape
The majority of revenue growth appears to originate from ADAS testing. However, this does expose the firm to some degree of risk. The technology is relatively new and constantly evolving. Suppose AB Dynamics is unable to continue enhancing its testing systems to keep up with this evolution. In that case, competitors might be able to swoop in and steal market share.
To me, this is particularly concerning, as the firm operates in a niche market space. This means the pool of available customers is quite limited, and thus the battle against competitors is fierce. This risk is somewhat mitigated by its diversified collection of clients, with the largest contributing less than 5% of total revenue. However, any client loss may take a while to bounce back from.
Another risk that stands out to me is its international operations. Only 28% of revenue originates from within the UK. The rest is generated internationally, primarily within North America (25%) and Asia (45%). This worldwide reach enabled AB Dynamics to become a globally recognised brand within the industry. But, it also exposes the company to continuous exchange rate risks across multiple currencies, which could impact the bottom line.
Is it among the best UK shares to buy now?
The pandemic has taken its toll on both the company and the share price. Disruptions to the global automotive industry have resulted in a significant number of orders to be deferred. And this is likely to continue throughout the first half of 2021.
However, I believe this has created another buying opportunity for my portfolio. The revenue is delayed, not lost. And the stock was still able to achieve top-line growth of 6% in 2020.
I think it now looks undervalued. Combining that with its unique and rapidly expanding business, makes me believe that AB Dynamics really could be one of the best UK shares to buy now.
