AB Dynamics - China exit and weaker demand hit FY2026 guidance
Shares in AB Dynamics (AIM:ABDP) have fallen sharply on the back of a profit warning for its current financial year to August 2026.
AB is a designer, manufacturer and supplier of advanced testing, simulation and measurement products to the global transport market. Headquartered in Bradford on Avon, the company supplies all the major automotive manufacturers, Tier 1 suppliers and service providers, who routinely use its products to test and verify vehicle safety systems and dynamics.
Chinese Testing Services to be closed
The main topic covered in today’s trading update related to the strategic review of the firm’s Chinese Testing Services business, VadoTech. It had previously been mentioned that volumes at VadoTech, relating to on-road testing in China on behalf of a European OEM, had not developed in line with the customer's earlier indications. Interims to February 2026 reported revenue reducing by approximately one half to less than £3 million for the period, hence the launch of the strategic review.
Volumes are said to have remained weak since the half year end and as a result it has been agreed that the contract will be terminated and that AB will exit the VadoTech business, with conclusion expected during the first half of FY2027. The result of this is that VadoTech will be accounted for as a discontinued operation for the current financial year, with revenues for the period expected to be c.£4 million lower due to the “discontinued” classification. VadoTech caused a strain on the company’s interims, with exceptional items (which were mainly non-cash impairments) totalling £16.8 million.
Challenging conditions elsewhere
In terms of wider trading, the overall backdrop is said to have become increasingly challenging through the second half. Reduced customer confidence and logistics headwinds arising from the Middle East conflict have been blamed, along with increased disruption to development programmes within the automotive market, particularly for European OEM customers.
On the plus side, the sales pipeline is said to remain healthy, with robust levels of customer enquiries. However, customers are lengthening their procurement decision timelines, adversely impacting short-term order conversion and revenue generation within the Testing Products and Simulation businesses. As a result, group revenue from continuing operations for FY2026 is expected to be in the range of £90-95 million. That’s some way below the £104.2 million re-presented base for FY2025 once VadoTech is stripped out as a discontinued operation,
AB Dynamics 10 year share price chart
A few positives
On a slightly more positive note, AB Dynamics believes it will be able to mitigate a significant degree of the adverse operational gearing impact of the lower than expected revenue having focused on actively managing operating costs and discretionary expenditure. Adjusted operating margin for FY2026 is expected to be 20%, consistent with the company’s medium-term plan.
The balance sheet is said to remain robust, with net cash at 30th June 2026 of £41.7 million, up from £39.3 million at the end of February. With a current valuation of £188 million, that’s c.22% of the market cap covered and a solid backing for new Group Chief Financial Officer, Ed Haycock, who will join the Board on 1st September. He has been promoted from Director of Financial Reporting having led a number of finance, management, strategic and commercial initiatives within the business, building on experience from his previous role within a large listed international manufacturing business.
Despite the setbacks and the profit warning, AB Dynamics remained positive on its long-term opportunities, highlighting its belief that the long-term structural drivers of growth in its key markets remain compelling, underpinned by significant regulatory and technological developments.
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Disclosures
AB Dynamics is not a research client of Optimo Research.
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