All AYSI holders please read this DD post I put up on another board. I think it is worth reading and is a bit of scattered but nonetheless informational mess that will hopefully show you why to hold those shares you have:) Enjoy (or as they say in Australia, Cheers mate!), hope it helps:
AYSI DD- some info:
- Growth so far has been basically financed internally and I am expecting the company to continue on this path for now though not certain. A 3rd mill would require a separate facility elsewhere and probably would entail some fair capital expenditure and possible borrowings if internal cashflows aren't strong enough up front (the 2nd mill from my understanding is being financed by internal cash and I expect the 2nd mill to boost internal cashflows going forward so in a few Qs I could see them generating strong free cash flow).
The company has an operating history of mostly not borrowing and not diluting. The 2nd mill being worked on fits inside their existing facility so is not so expensive for them IMO. Plus, with 2 12 hour shifts potentially running on 2 mills, that could theoretically almost quadruple capacity from earlier Qs (where I think they were stretched a little near $1.9 mill revs).
I think 2 12 hour shifts on both mills (once 2nd mill is completed) is likely because CEO mentioned orders for Arcoplate were so strong that they had to stop taking new customers recently until the 2nd mill is commissioned. He said that even then he thought orders would once again outstrip production.
Therefore, giving a 3 month window to fully staff the 2nd mill for 2 shifts (probably at minimum 20+ production people needed) I have waited until Q2 08 to consider the 2nd mill near full production so I am guessing close to $1.5 mill revs per shift per mill based on history of their production with the 1st mill.
So Q2 08 should have $5+ mill revs IMO (they have some plant closure time typically in January for annual maintenance so I'm backing away a little from the $6 mill revs figure a $1.5 mill per mill and shift run rate would imply).
Customers and product:
The customer base IMO is somewhat concentrated to the big miners in Australia but they have customers thruout the world and demand is picking up worldwide from what I'm hearing. 3 of the world's 4 largest miners are located in Australia (and 2 planning major iron ore West Australia expansions in 2008 and beyond).
The upswing in mining has brought on new sales worldwide, but in particular the West Australia iron ore projects (feeding China and India's steel demand) IMO are a driver for the backlog they are building. Magnetite is the iron ore mined that wears heavily on equipment (and provides a higher quality steel) but the slightly less abrasive hematite also often requires a fair amount of wear plate on equipment. so if I had a choice, I'd want to see more magnetite mining than hematite but both use wear plate often.
AYSI has patents in many countries worldwide. I forget the exact amount and locations but include the main countries (Australia, US, Canada, S Africa, Chile, China I believe, Japan, these are from memory so don't quote me on these but gilead might know).
The thermoclad process is the 'secret' recipe. If you get into the minutia of things, my basic take-home thoughts were that the process bonds the mild steel backing to the alloy overlay metallurgically so it eliminates a shear plane (where things like delams can occur more often on traditional plate). This helps eliminate some of the problems with traditional wear plates beyond just wear (delams, spalling, etc...). Plus the chromium carbide alloy overlay has a better distribution of chromium allowing for more even wear on the plate multidirectionally. The CEO mentioned he ahs end users telling him frequently that he doesn't need to sell the product because the product sells itself. With increased sales, this could mean a large repeat customer base building for the future IMO.
The company has never heavily budgeted toward advertising (usually under $50 thou annually I believe) so this increased sales exposure should help get out word about the quality of product.
As far as some WAGs for Q4 07 and beyond
I calculated by shift and gave a little upside to production efficiency since I think they brought in 6 new workers at start of Q4 07 (and I think added 10 more during rest of Q). Then I subtracted a little to be conservative So day shift did $1.9 mill revs previous Q but they brought in new workers at end of that Q/beginning of Q4. Therefore, I assumed they could do roughly $2.1 mill on day shift and then just guessed that shift #2 started late August or so and gave shift 2 about 1/3 of the Q's day shift revs (since they worked roughly 1/3 of the Q with my guess).
So $2.1 mill days and $0.7 nights= $2.8 mill. Take out roughly 10% for fudge factor and I gave $2.5 mill revs. I assumed roughly 50% GMs since the extra staff IMO may help margins a little bit (probably more so next Q). I put SG&A a bit higher for fudge factor and because I thought the 2% royalty was included as SG&A expense (I may be wrong on that- royalties being expensed in SG&A and not cost of sales, let me know if I am in which case my GMs might decrease to say 48% and SG&A would drop to roughly $0.55 mill but the end calcs stay the same).
With $2.5 mill revs, 50% GMs and $0.6 mill SG&A with 33% tax rate, I get about 2.5-2.6 cents EPS for Q4 07.
This is a bit of guessing game and #s could go higher or lower obviously based on when 2nd shift started, etc...
So Q4 07 we have:
$2.5 mill revs and 2.5 cents EPS.
Now, Q1 08 we have a full Q with 2 shifts running and possibly a 2nd mill getting commissioned, so I figure about $4.2 mill revs WAG.
Using above formula of 50% GMs, 33% tax rate, and a bit more SG&A of say $0.7 mill on higher revs I get a bit over 5 censt EPS net income.
And Q2 08 should be a fair amount better becasue I did not count much revs input from the 2nd mill in Q1. So if 2nd mill gets cranked up and can do roughly $3-$4 mill over 2 12 hour shifts 5 days a week then Q2 revs could be around $6-$7 mill. Let's assume $6.5 mill revs (remember CEO mentioned he felt they'd outstrip capacity even as the 2nd mill got up and cranking so I don't think it is a stretch to use these revs figures).
So 50% GMs (this will obviously vary Q to Q), 33% tax rate, SG&A of $0.8 mill= over 9.5 cents EPS for the Q. Maybe safer to use $6 mill revs since Q2 08 has some plant downtime at beginning of Q (or has historically anyways). So about 9 cents EPS.
So
Q4 07 revs of $2.5 mill, EPS of 2.5 cents
Q1 08 revs of $4.2 mill, EPS of 5+ cents
Q2 08 revs of $6 mill, EPS of 9 cents
For some icing on the cake, the CEO is visiting Canada very soon and will be showing the product to companies involved in the Alberta oil sands arena. If they can win some kind of orders there, these guys will ave more orders than they know what to do with and will IMO either have to raise the price of the product to slow demand and allow for rampup time, or else rampup quicker (a JV was something I speculated over with gilead and MikeS as possible if the companies involved in Alberta are big and want the product quickly, that being maybe the bigger company could help fund a JV with AYSI to get a plant started somewhere in North America).
All of this last part above is speculation at this point and the entire post is all IMO.
But, I feel like I have a good grasp on the company. The thing I feel I don't have a grasp on is important, and that's gross margins. If gross margins fall under 40% I won't be too satisfied. But if they stay at or above 45% then I think AYSI will easily do 20 cents+ EPS in 2008 barring any big issues cropping up.
So at 70 cents, this stock looks very cheap considering the potential growth ahead...
All IMO.
Good luck all...
I don't mind stealing bread from the mouths of decadence... But I can't feed on the powerless when my cup's already overfilled.
-Temple of the Dog
"We didn't build this company on the sniff of an oily rag."
-Anonymous
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