Replies to post #7765 on Alloy Steel Inc. (fka AYSI)

[misterp]

Proper earnings indeed. They forgot to update the share count in the P&L. They bought the shares at an attractive price.

I still don't trust the owners. The drop in margins is even worse if you consider that they bought Matrix (a related party) which should have increased margins significantly. I still suspect the owners that they bought Matrix at a way too high price.

[Swick984]

Was on the road yesterday, so only got to the numbers today. Sales were strong, now sitting at a record level for the trailing twelve months in Australian dollars. Gross profit margin was well below typical levels, though there isn’t enough information to determine why. Periodically they have these quarters with unusually low margin, then bounce back up the following quarters. If you look at the trailing twelve month figures they are still in line, but frustrating to see the dip nonetheless. A/R and inventory both up big this quarter.

On the inventory side, not known how much of that is related to Arcoplate versus some of their new welding consumables products. Margin difference this quarter might also be related to sales of their new welding machines. I would think they’re employing a razor/razor blade type model here, where they sell the machine at lower margin to get the recurring higher margin (but initially lower $ amount) sales of consumables. Hard to know what’s happening without any details or management discussion.

Share repurchase was done at $1.30, so a good price for the company in my opinion, as fundamental value is much higher. Float is down to 5.5 million shares.

This has moved well past my expected investment horizon, and while I’m generally pleased with their operating performance, their investor relations has been below expectations. This may require more pushing and prodding of the board to return some of this excess capital back to shareholders through dividends or additional share repurchases.