Amaero International Ltd - Readied for Operational Performance
Amaero International Ltd
Readied for operational performance
Amaero International Ltd (ASX:3DA) is a global specialist in metal additive manufacturing for the defence, aerospace and tooling sectors. The company has delivered Q4 cash receipts of $0.14m and an operating cash loss of $2.2m which was better than our forecast loss for the quarter. The company also completed an ~$11m (US$7.6m) placement in the quarter, at nil discount to its last traded price, from US institutional investors led by US growth investor Pegasus Growth Capital Fund. Amaero is a company in transition with its titanium powder facility approved by the Environmental Protection Authority and now scheduled for completion in Q2 CY2023. The delay in the completion of the plant has been caused by tightness in the domestic commercial construction industry, global supply chain issues and delays in receiving regulatory approvals. We have adjusted our forecasts to reflect the delay in the timing of commissioning, largely impacting our FY23 forecasts. Our base case valuation has also now incorporated a higher risk-free-rate, to reflect the increase in the 10-year Treasury rate. We have applied 3.5% (up from 2.0%) across the board for our valuations. We continue to see upside in our valuation from the expanded plan to 5X and potentially 10X production from the titanium alloy powder facility as well as Amaero’s ambitions to take its Fletcher tooling contract to global expansion and build an additive manufacturing facility in the Middle East. Our upside case on these opportunities is $4.39/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.
A quarter of laying the groundwork
Amaero has reported Q4 cash receipts of $0.14m, which was down on Q3 FY22 and the pcp. The operating cash loss for the quarter was $2.199m with a bit of a tick up in product and manufacturing costs associated with fulfilling purchase orders for BAE Systems Australia and the CSIRO and with additional staff as the company gears up to install its titanium powder facility in Notting Hill in Victoria. The company ended the quarter with $11.12m in cash, having completed an $11m placement in Q4, which will be sufficient for five more quarters during which time Amaero expects to finalise the completion and commissioning of its powder facility. Construction of the facility is now anticipated to be completed in Q2 CY2023. We have adjusted our forecasts to reflect the timing change for the facility to become operational and this has impacted our FY23 forecasts. We will anticipate that Amaero will be cash generating in FY23, with profitability delayed now until H1 FY24.
Base-case DCF valuation is $0.60/share, upside case is $4.39
Our base-case DCF valuation is $0.60/share. This incorporates the first stage of the titanium powder facility and current contracts with Fletcher, Boeing and Gilmour Space Technology but not the Middle East 3D printing centre, the larger Fletcher opportunity or the plan to 5X and potentially 10X the titanium powder plant. Our upside case on these opportunities take our valuation up to $4.39/share or $1.375b.
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