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Date : 04/03/2021

Amaero International Limited

ASX :

3DA

Market Cap : $127.12 Million

Buy

52 Week Range : $0.065 - $0.835

Share Price : $0.59

Amaero is positioned well with cash reserves and client base to continue its growth strategy. We recommend investors to "Buy".

Company Analysis

Amaero International (ASX: 3DA) is Australia’s largest 3D printing specialist. Their technology was developed by Monash University and is being used in the defence, aerospace, automotive, and tooling sectors. They have already worked and continue to work with some of the top companies in the world from the aforementioned sectors.

Amaero offers the below services to their clients in the aviation, defence, space, and tooling industries:

  • Access to R&D personnel in the metallurgy, materials engineering & computer simulation fields for the manufacture of metal additive manufacturing.
  • Product designing based on requirements with a reduced development timeline for concept to 3D printed product stage.
  • On-demand manufacturing of customised components of various sizes by way of contract manufacturing.
  • Production of tools for high volume manufacturing.
  • Sale of Amaero’s series of laser powder bed fusion machines and other turnkey solutions for 3D printing.
  • Commercialisation of proprietary alloys for 3D printing.


Source: Tradingview.com

We recommended investors hold their positions back in December. Now, the stock has declined 9% since then and it looks to be a very good price to get in on once again.

Quarter Review

In the latest quarter, there have been a few developments in the Amaero camp.

  • An oversubscribed capital raising was completed for $9 million via a placement offer to institutional investors at $0.55 a share. The funds raised are being used for equipment purchases, capital expenses, R&D, and working capital.
  • A partially underwritten share purchase plan was offered at the same price and it raised $4.825 million.
  • Amaero received the AS9100 Certification – a requirement to work with clients from the aerospace industry. This resulted in Amaero receiving a purchase order from Boeing for the manufacture of parts.
  • One of Amaero’s subsidiaries – Amaero Alloys entered into a Joint Venture agreement with PPK Group and Deakin University. They are said to be researching to develop an aluminium alloy of super strength. The aim here is believed to be towards creating a new IP and opportunities for high end applications across the aerospace and defence industries, and other high-performance markets.
  • Amaero Engineering, another subsidiary has teamed up with MEMKO Aviation Aerospace Defence to jointly market and provide their engineering and manufacturing services to third parties. These services are believed to be in the field of design, manufacturing, and certification of products for aviation, defence, and space applications.
  • Amaero has a new VP for its North American Operations. Ken Davis, previously a Director of Additive Technologies comes into the role with knowledge and experience in powder metallurgy, additive manufacturing, aerospace, and defence qualification processes. This looks to be a very good move by Amaero. Since the firm received the AS9100 Certification and has already worked with Boeing, a senior management hire will hopefully bring in more business from customers.
  • With geopolitics heating up in the world, there may be reason to believe that defence projects will increase in the near future. The new Democratic Government under Biden in the USA has been looking to increase Defence spending as well. Amaero has appointed Christopher Pyne to advise on defence and geopolitical related defence projects. Mr. Pyne is known to be working closely with international defence advisors and also the former Secretary of Defence of the USA.
  • Upon approval in the AGM, Amaero issued close to 380,000 fully paid ordinary shares in lieu of cash to its directors. These shares are a part of salary sacrifice issue and the move is believed to have been made in order to further preserve capital.

Bright Start to 2021

2020 was a fantastic year for Amaero. They have made huge strides forward and it has reflected in the share price performance as well. In 2021, Amaero has already wrapped up two orders:

  • Amaero has received a purchase order from Nissan Casting Australia for a 3D printed tool steel inset for die-casting auto components. Nissan Casting manufactures and distributes aluminium and machine castings for the automotive industry and vehicle accessories industry. They export their products to Japan, USA, UK, Thailand, Mexico, and South Korea. The potential for recurring revenues here is extremely large.
  • Raytheon Intelligence and Space has also put in a purchase order to Amaero for the production of 3D printed samples in new materials for evaluation. We believe this deal will be similar to the one made with Boeing, wherein on successful evaluation of the manufactured components, Raytheon has the potential to become a source of recurring purchase orders and hence revenues.

Finances

For the half year period, Amaro received $119,050 in revenue from customers. This is compared to just $27,614 in the previous corresponding period. Most of this revenue has come from the sale of goods. Machine rentals and engineering services contribute just 5% and 7%, respectively.

Even with this growth, Amaero reported a gross profit of just $7,609. This puts the gross margin at 6.39%. At this early stage, for a manufacturing firm, the low gross margins should not raise any red flags due to the fixed costs involved in the production processes.

Amaero has increased its R&D investment and marketing expenses during the half year – leading to an operating loss of $2.7 million. For the half year FY2021 ended December 2020, Amaero reported a loss of $2.8 million. Net assets stood at $13.9 million – this includes $9.1 million in cash reserves.

This high level of cash on the balance sheet means that Amaero will have sufficient money to fund its growth strategy. We are not expecting Amero to raise additional funds in the remainder of FY2021 unless the firm wraps up a ginormous contract (which of course will result in quite a surge in share price).

Similar to FY2020, we are expecting a big year for Amaero in FY2021. There are projects that have advanced well already, such as with Boeing. This is also expected to yield a longer contract agreement for manufacturing in the near future. The diversification of industries that Amaero is targeting for customers is a major boost as far as revenue generation is concerned.

The additive manufacturing industry is set to grow at 11x over the next decade from a $12 billion valuation into a $146 billion industry – growing at a CAGR of 25%.

Recommendation

Amaero is well positioned with a lot of credibility to take advantage of the general shift to 3D printing. Some of the biggest firms are already contracted with Amaero and this can lead to recurring revenues. Amaero has enough cash in the bank for the remainder of FY2021 and there will be further contracts added on to the existing ones. We recommend investors to “Buy” for the long-term.

 

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