Here's the potential:
1. The company just signed a five year framework contract with one of the largest mining companies in the world, BHP, for the supply of wear liners to its iron ore operations in the Pilbara area of Western Australia. The AYSI group has been supplying Arcoplate to BHP for over seven years. This contract provides a mutually beneficial framework for future supply until 2018.
2. The company is currently in the process of expanding its Australian manufacturing facility as mentioned in the latest information statement on the company's website:
"The facility at 42 Mercantile Way is being expanded and the commercial arrangements under the lease will be updated to reflect the expanded occupied premises"
3. The company is looking for capital to fund its expansion in Indonesia to provide for a low-cost manufacturing footprint to serve the international markets.
4. In terms of valuation, at $0.75, AYSI is trading at a PE of approximately 3x. They also have $0.17 per share in cash and over $3 million in real estate in Indonesia (over $0.17 per share). That means you’re essentially buying the operations for $0.42, or a PE of approximately 2x.
Even compared to peers and competitors in the same industry, AYSI is severely undervalued. Their closest peer and direct competitor is Bisalloy, a company traded in Australia. Over the last twelve months, Bisalloy’s operations generated EBITDA of $11.8 milllion and their enterprise is being valued at $69.5 million. Alloy’s operations generated EBITDA of $7.4 million and their enterprise is only being valued at $6.6 million! If you valued AYSI at the same multiple, they would trade at over $2.75. If you prefer PE multiples, Bisalloy trades at 8.3x (Bisalloy has minimal cash and $15 million in debt), which using the same multiple, would put AYSI at over $1.90, and $2.33 if you add in cash and real estate. If you prefer book value multiples, Bisalloy trades at 2.5x tangible book. If AYSI traded at that multiple, they would be worth over $2.70 per share.
5. The company has been profitable for 22 of the last 24 quarters.
6. They're looking to expand their presence in the U.S. and Canada. They are targeting the U.S. mining industry, including coal, gold, iron ore and copper along with a few other minerals. They're also looking at making inroads in the mineral processing industry in the U.S.
So you're buying a growing profitable company for 2x operating earnings (excluding cash and real estate). I think there is plenty of potential here...
AI
