Director, RaaS Research Group, Research as a Service (RaaS)

Research as a Service (RaaS)

Director, RaaS Research Group

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Equity Bottom-Up

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<h2>Capral Ltd</h2>
<h3>Consolidating a record year</h3>
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<p>Capral Limited (ASX:CAA) is Australia’s largest extruder and distributor of aluminium extrusion and rolled products with ~26% market share. CAA has a strategic national footprint comprising six manufacturing plants, eight extrusion presses, eight distribution centres and 12 trade centres. The group has a diversified sector and product mix across residential (47%), industrial (42%) and commercial (11%). CY21 was a record earnings year, driven by a buoyant housing market, market-share gains from imports (supply chain disruptions and higher shipping costs) and investment in infrastructure. Volumes as a result were 25% higher than CY20 and revenues 37% with the balance attributed to higher aluminium prices. Strong operating leverage drove trading EBITDA 92% higher (to $38.2m). CAA continues to focus on improving productivity and competitiveness relative to imports through process improvements, capital investment, product development and e- commerce/mobile. Guidance for CY22 implies a similar to slightly lower EBITDA relative to CY21 with some caution around both imports and general aluminium prices. CAA was the subject of a non-binding bid from Allegro in April 2021 at $7.00/share which was quickly quashed by shareholders suggesting it under valued the company. The share price sits 18% higher today.</p>
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<h3>Business model</h3>
<p>CAA manufactures and sells a range of extrusions for architectural and building solutions for residential and commercial uses, together with a range of extrusion, sheet and plate products to supply industrial fabricators and distributors. Building solutions includes framings systems for windows and doors, while industrial fabricators are prevalent across the transport, marine, seating and fencing sectors. The level of profitability is determined by the utilisation of manufacturing and distribution capacity and the level of aluminium prices.</p>
<h3>CY22 guidance wary of supply chain “normalisation”</h3>
<p>Off a record trading EBITDA base of $38.2m in CY21 management’s guidance for CY22 is for trading EBITDA of between $34m and $38m. Trading EBITDA excludes LME, FX and includes rent payments; in CY21 trading EBITDA excluded $2.8m in LME, FX revaluation and includes $18.2m in rent payments. With LME prices for aluminium at historical highs a normalisation of global supply chains is expected to place some pressure on margins during CY22. That said, activity levels in residential, commercial and industrial are expected to remain buoyant during CY22.</p>
<h3>No pure-play listed peers but BlueScope a similar business</h3>
<p>CAA as an extruder of aluminium billet should not be confused with the likes of Alcoa which actually mines the bauxite and alumina to create aluminium. Domestic competitors of CAA include the family-owned Ulrich Group, based out of New Zealand, which operates one extrusion plant and 25 branches. From a business model perspective Bluescope Steel (ASX:BSL) has similar attributes in that it creates a range of products from steel that are produced by the likes of China Baowu group in China. These products are subject to movements in commodity prices and typically used in residential and commercial construction. Interestingly, BSL also produced a record H1 FY22 result for similar reasons to CAA.</p>
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Capral Ltd
Consolidating a record year





Capral Limited (ASX:CAA) is Australia’s largest extruder and distributor of aluminium extrusion and rolled products with ~26% market share. CAA has a strategic national footprint comprising six manufacturing plants, eight extrusion presses, eight distribution centres and 12 trade centres. The group has a diversified sector and product mix across residential (47%), industrial (42%) and commercial (11%). CY21 was a record earnings year, driven by a buoyant housing market, market-share gains from imports (supply chain disruptions and higher shipping costs) and investment in infrastructure. Volumes as a result were 25% higher than CY20 and revenues 37% with the balance attributed to higher aluminium prices. Strong operating leverage drove trading EBITDA 92% higher (to $38.2m). CAA continues to focus on improving productivity and competitiveness relative to imports through process improvements, capital investment, product development and e- commerce/mobile. Guidance for CY22 implies a similar to slightly lower EBITDA relative to CY21 with some caution around both imports and general aluminium prices. CAA was the subject of a non-binding bid from Allegro in April 2021 at $7.00/share which was quickly quashed by shareholders suggesting it under valued the company. The share price sits 18% higher today.





Business model
CAA manufactures and sells a range of extrusions for architectural and building solutions for residential and commercial uses, together with a range of extrusion, sheet and plate products to supply industrial fabricators and distributors. Building solutions includes framings systems for windows and doors, while industrial fabricators are prevalent across the transport, marine, seating and fencing sectors. The level of profitability is determined by the utilisation of manufacturing and distribution capacity and the level of aluminium prices.
CY22 guidance wary of supply chain “normalisation”
Off a record trading EBITDA base of $38.2m in CY21 management’s guidance for CY22 is for trading EBITDA of between $34m and $38m. Trading EBITDA excludes LME, FX and includes rent payments; in CY21 trading EBITDA excluded $2.8m in LME, FX revaluation and includes $18.2m in rent payments. With LME prices for aluminium at historical highs a normalisation of global supply chains is expected to place some pressure on margins during CY22. That said, activity levels in residential, commercial and industrial are expected to remain buoyant during CY22.
No pure-play listed peers but BlueScope a similar business
CAA as an extruder of aluminium billet should not be confused with the likes of Alcoa which actually mines the bauxite and alumina to create aluminium. Domestic competitors of CAA include the family-owned Ulrich Group, based out of New Zealand, which operates one extrusion plant and 25 branches. From a business model perspective Bluescope Steel (ASX:BSL) has similar attributes in that it creates a range of products from steel that are produced by the likes of China Baowu group in China. These products are subject to movements in commodity prices and typically used in residential and commercial construction. Interestingly, BSL also produced a record H1 FY22 result for similar reasons to CAA.













Australia

Capral Limited manufactures, markets and distributes semi-fabricated aluminum extrusion and sheet products in Australia and New Zealand.

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Capral Ltd (CAA AU)

Capral Ltd - Consolidating a Record Year

Capral Ltd Consolidating a record year Capral Limited (ASX:CAA) is Australia’s largest extruder and distributor of aluminium extrusion and...

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