Amaero International Ltd: Making Solid Progress
Amaero International Ltd
Making solid progress
Amaero International Ltd (ASX:3DA) is a global specialist in metal additive manufacturing for the defence, aerospace and tooling sectors. The company has reported Q2 FY22 cash receipts and revenues of $0.134m, a 113% increase on the cash receipts generated in the previous corresponding period (pcp), and up 21% quarter-on-quarter. Monthly cash burn increased to $0.64m from $0.54m in the same quarter a year ago but was down on the $0.85m cash burn reported in Q1 FY22. The company invested in additional research and development (R&D) and staff ahead of anticipated revenues but contained operating costs and product manufacturing costs in the quarter. Operating cash outflow for the quarter was $1.93m, up from $1.61m in Q2 FY21 but down on the $2.55m operating cash loss reported in Q1 FY22. During the quarter, the company signed a Heads of Agreement with Gilmour Space Technologies which will lead to a long-term supply agreement expected to generate ~$1.7m in revenues over the three-year term. Amaero also progressed its key projects with Fletcher Insulation and Rio Tinto, with positive test results recorded for the spinner tools for Fletcher and the first batch of Rio’s alloy billets atomised into powder with testing now commenced. Its cash balance at quarter end was $4.97m. Just after quarter-end, 3DA announced it had signed a 10-year lease for its 150tpa titanium powder plant with works commenced and commissioning slated for Q3 CY22. We have pushed out our forecasts for these projects by six months, resulting in earnings revisions to our FY22 and FY23 forecasts. Our base case valuation remains at $0.91/share.
Business model
Amaero generates revenues 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 Q2 FY22 revenues and cash receipts of $0.134m and operating cash outflows of $1.93m. Revenues were below our expectations but the operating cash outflows were also lower than expected, reflecting the company’s focus on cost containment until it builds revenues. Operating, staff and R&D costs were all lower than we had forecast due to delays in the Fletcher and Rio Tinto projects. These are progressing well but not as fast as we had anticipated. We have pushed back the commercial timing of these projects and the commissioning of the 150tpa titanium facility by six months and this has been reflected in our revised forecasts for FY22 and FY23.
Base-case DCF valuation is $0.91/share
Our base-case DCF valuation of $0.91/share includes forecasts for the 150tpa titanium powder facility as well as existing contracts with Fletcher (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 $1.15b or $5.69/share.
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