Advanced Braking Technologies (ASX: ABV)
Advanced Braking Technologies (ASX: ABV) is a small emergency brake manufacturer operating from an industrial suburb in Perth. Its main clients are mining companies, and the main reason that they buy the ABT Failsafe brake is for safety.
The ABT Failsafe brakes provide a large red button on the dashboard that makes it easy for workers to stop the vehicle in an emergency. Unlike alternatives, ABT Failsafe brakes are fully sealed which prevents brake dust from contaminating the air in heavy braking environments with poor ventilation, such as underground mines. As a result, underground mining companies are the most important customer group.
While surface mining is the cheapest and most widespread type of mining, there are various reasons to think that underground mining will continue to grow. The most compelling argument from my point of view is that underground mining is less visible and less damaging to local environments and communities. This means that (all else being equal) underground mines should face less community opposition than open-cut mines.
Advanced Braking Technologies makes its money by selling brakes, and also by maintaining and repairing them. According to DMX Asset management, around half of the revenue is from maintenance and repair. Most of its money is made in Australia, but more than a third already comes from international customers, so it truly does have a global reach.
CEO Andrew Booth was appointed in March 2022, and does not hold a great deal of shares. However, non-executive investor David Slack, who has a background in equity analysis owns over 75 million shares and bought shares in March at below 5c per share. This provides some alignment at a board level.
In any event, revenue growth has been fairly strong and consistent over the years, as you can see below.
At the current price of 7c per share, Advanced Braking has a market capitalisation of about $28 million. It has cash of $2.4m, and a pre-announced profit of $1.7 million (up 10%) for FY 2024, putting it on a P/E ratio of about 16.5.
After I covered Advanced Braking in this article on 3 Microcaps I Think Look Prospective, back in May, I bought shares myself at 5c and then 5.6c. While the share price is now higher, at 7c per share, it is also fair to say that the June quarter was pretty decent, being the strongest ever quarter for revenue.
Given it is cashflow positive, profitable, and growing, I still consider Advanced Braking Technologies quite attractive at these levels. However, being a very tiny microcap dependent on very large and powerful customers means that I do consider Advanced Braking to be a high risk investment that should be sized appropriately.
Disclosure: the author of this article owns shares in ABV and will not trade them within 2 days of publication. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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