Amaero International Ltd: Investing in the Business Ahead of Revenues

Equity Bottom-Up

259 Views26 Oct 2021 08:00

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SUMMARY

Amaero International Ltd

Investing in the business ahead of revenues

Amaero International Ltd (ASX:3DA) is a global specialist in metal additive manufacturing for the defence, aerospace and tooling sectors. Amaero has reported Q1FY22 cash receipts and revenues of $0.11m, a 54% increase on the cash receipts generated in the previous corresponding period (pcp) but down 46% on the Q4FY21 cash receipts. Monthly cash burn increased to $0.85m from $0.41m in the same quarter a year ago and $0.32m in Q4 as the company invested in additional research and development (R&D), product manufacturing, and operating costs and staff ahead of anticipated revenues. Operating cash outflow for the quarter was $2.55m, up from $0.97m in Q4 FY21 and $1.23m in Q1FY21. Amaero noted that key projects with Fletcher Insulation and Rio Tinto have faced continued delays due to COVID-19-related supply chain issues and travel restrictions. Its cash balance at quarter end was $7.96m. We have pushed out our forecasts for the Fletcher Insulation and Rio Tinto projects to later in FY22, resulting in earnings adjustments to our H1FY22 and FY22 forecasts. Our base case valuation is now $0.92/share (previously $0.98) and includes the existing contract with Fletchers (not the global opportunity) and the recently upgraded ~150tpa titanium powder facility which Amaero is forecasting will generate revenues of $40.8m p.a. Further upside exists on the successful commercialisation of the Middle East 3D printing facility, an upscaled 1,200tpa titanium powder facility and the global rollout of the tooling solution for Pink BattsTM.

Business model
Amaero generates revenue from several sources including: the design and prototyping of additive manufacturing solutions on a cost-plus basis; from contract manufacturing and tooling on a price-per-unit basis; from the sale of proprietary metal 3D printers and equipment, and 3D printing metal powders on a cost-plus mark-up basis; from post-sales support and maintenance service fees; and from the rights to commercialise patented proprietary alloys developed by Monash University on a price-per-unit basis. Amaero has the North American commercialisation rights to a range of 3D printing machines, including the world’s largest laser powder bed machine, as well as the powder preparation machines and powder handling and recovery devices. The company owns fully accredited manufacturing facilities in Melbourne, Adelaide and El Segundo, California.

Investment in R&D and progressing commercial agreements
Amaero has announced Q1FY22 revenues and cash receipts of $0.11m and operating cash outflows of $2.55m. The company invested $0.68m in R&D, which was higher than our expectations, as were product manufacturing and operating costs. We have adjusted our H1FY22 forecasts to reflect higher R&D investment going forward and lifted operating costs. Employee costs were lower than forecasted but we expect Amaero to invest in human capital as the projects move to commercialisation. Amaero also spent $1.0m on deposits for capital equipment purchases for the titanium powder manufacturing facility. Management noted that it expected travel to the Gulf in the coming quarter to progress negotiations on the Middle East 3D printing facility project agreement and view potential sites.

Base case DCF valuation is $0.92/share (previously $0.98)
Our base case DCF valuation of $0.92/share (previously $0.98/share) includes forecasts for the 120tpa titanium powder facility as well as existing contracts with Fletchers (but not the global rollout) and a US defence and aerospace manufacturer. Successful commercialisation of these projects delivers considerable upside to our valuation. As we have previously highlighted this could take our valuation to $1.16b or $5.76/share.

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