Bisalloy Steel (ASX: BIS) is Australia’s only manufacturer of high-strength, abrasion-resistant, quenched and tempered steel plates. The steel produced by the firm is used for armour, structural, and wear-resistant steel applications. The company exports to countries throughout Asia, the Middle East, Europe, North America and South America.
Bisalloy has a very good product and distribution mix. They cater to the mining, construction, defence, and fabrication industries. When it comes to distributing their products, Bisalloy has a network of third-party distributors across Australia; they also ship directly to the end-user and through a variety and agents in Asia.
This product and distribution diversification greatly reduces risk levels. Since they do not over-rely on specific distributors, supply chain risks, which are very apparent in the post-pandemic world, are diversified away.
Because Bisalloy Steel’s products are trusted and their use is so widespread, Bisalloy has become the generic name for quenched and tempered performance steels in Australia and many countries across Asia. From its base in Unanderra, south of Sydney in NSW, Bisalloy Steels manufactures these products through a highly efficient, continuous flow process. Since starting in 1980, Bisalloy Steels has earned an outstanding international reputation for the quality of its products and technical support. Throughout the last forty years, the company has established strong long-term relationships with top customers in Australia, such as BHP, Rio Tinto, Barrick, and Caterpillar.
About two years ago, a new Board took over from the one who had overseen this company for over two decades. This occurred because shareholders of Bisalloy had received unacceptably low returns from this business over a long period and wanted the new Board to push the company to achieve improved and more sustainable results.
In the first year, Bisalloy’s earnings were up by 25%, and the BIS share price has followed. The new Board has only begun to demonstrate the potential that exists for this small Australian manufacturer with an internationally regarded brand to grow and deliver stronger earnings into the future.
When we look at the 5-year share price chart above, we can see the underperformance in the BIS share price up until 2020. Following this, BIS shares have really surged.
BIS YTD Performance: +16%
BIS 1-Year Performance: +43%
BIS Performance since 2020: +67%
Looking ahead over the next couple of years, there will be a relentless and sharper focus on financial and operating performance that strengthens and builds a more sustainable business for shareholders. The Board will enable this shift in 4 ways:
1. An aggressive strategy where Bisalloy will take advantage of growth opportunities;
2. Increased emphasis on building customer and supplier partnerships;
3. Alignment around the short-term and longer-term business performance;
4. A significant change in the way management and Board work together.
Bisalloy is uniquely positioned to be the supplier of choice for Australian Q+T plate users. They have a world-class product and an internationally regarded brand. Bisalloy has a much shorter supply chain than international Q+T plate producers who wish to export their products into Australia. They also have a tailwind to support Australian manufacturing that is driving end-users of Q+T plate to buy from.
As domestic and international travel restrictions brought on by COVID-19 were relaxed, 2022 is the right time to increase investment in building and strengthening long-term partnerships with all suppliers and users of the Q+T plate. Bisalloy’s strategy is to not only forge stronger personal relationships but also to provide better availability than their competitors.
The performances have not been a stroke of luck, or the business benefiting from the changes brought about by the pandemic. The performance has been driven by the structural changes that the company has made. The new Board, the pragmatic strategy, and industry tailwinds have helped.
The profitability ratios from 2019 show real positives for Bisalloy. An increasing trend across all three of these ratios (ROA, ROC, and ROE) mean that the company is performing extremely well operationally – making the most of its available resources (assets), and utilising capital appropriately. These are hallmarks of a well-run business, and Bisalloy is certainly one of them since the new Board took over.
High operational performance leads to high financial performance in the long term.
The latest financials show that Bisalloy is performing extremely well operationally and financially. For the first half of FY22, Bisalloy delivered a robust financial performance for the first half of FY22 – reflecting the foundations that Bisalloy has put in place to create a stronger and more resilient business. They have continued the reset of the business, installed new leadership, and continue to refine their strategy for growth to create long-term value for stakeholders.
Some of the highlights of the financials were:
· Operating EBITDA of $16.7m, up 25.4% on last year
· Revenue of $104.8m, down 5.3% on last year
· Net Profit After Tax of $9.0m, up 31.1% on last year
· Earnings Per Share of 19.3c, up 29.5% on last year
· Final Dividend for the FY21 year of 9.0cps fully franked
Supporting all of these strategies has been the balance sheet of Bisalloy. One of the priorities set out by the new Board was to bring down debt levels and reduce gearing. This has already been put in process. We can see that Bisalloy has reduced its debt levels by more than half in FY21. Gearing has also been brought down to under 15% and is expected to reach below 10% – setting up the firm extremely well from a risk standpoint.
A strong balance sheet and profitability translate to strong dividends. Bisalloy is certainly paying high dividends to its shareholders. BIS shares trade with a dividend yield of 7.29%, fully franked.
Bisaaloy Steel is the only manufacturer of high-strength in Australia. Following underperformance, the company has a new revamped Board that has revitalised the company from the top-down. Their profitability is soaring, the outlook is positive, and financials are robust. Bisalloy shares are up 43% in the past year and 16% in 2022. Add to this the 7% dividend yield, and we have a stellar long-term growth + Dividend play in a single package.