Austin Engineering (ASX: ANG) specialises in designing and manufacturing customised mining dump truck trays, digger buckets, and other related products.
The business has shown steady revenue growth in recent years as an operational efficiency and sales and marketing initiative pays off.
This was initiated by CEO and managing director David Singleton. Singleton is officially stepping down on June 1, and former non-executive director Sybrandt (Sy) Van Dyk has just started the transition period on the 1st of May.
Van Dyk has extensive experience with other ASX listed mining services businesses in Perenti (ASX: PRN) and the formerly listed DDH1. Given the current strategy is growing sales, it seems unlikely Vay Dyk would make any drastic changes.
Initiatives for Austin Engineering (ASX: ANG) Show in 1H FY2025 Results
The latest half-year results to 31 December 2024 saw revenue up 18.5% to $170.2 million compared to the previous corresponding half (FY2024 H1: $143.6 million). The US was a major contributor, up 52%, enhanced by local commodity market strength. The other two regions – Asia Pacific and South America also grew revenue.
The chart below shows revenue by major market. You can see revenues accelerating in 2021 when the Austin 2.0 operational efficiency and sales and marketing initiative commenced.
Source: Data compiled from Austin Engineering financial year reports
Free Cash Flow (FCF) was minus $10.4 million, calculated by taking operating cash minus spending on property, plant and equipment. The negative cash flow was caused by negative operating cash flow of $4.35 million, from higher raw material costs, and increased employee and subcontractor expenses. Spending on property, plant and equipment was $6.21 million higher than the previous half, as Austin invested $6.1 million to support higher capacity in the Americas.
This, plus a higher tax bill, resulted in statutory Net Profit After Tax (NPAT) of $10.24 million over the half, down 21.92% from $12.2 million in the prior corresponding period (1H FY2024).
The company’s cash position halved from $40.1 million to $20.18 million as Austin invested in a bulk supply of steel. Net debt is now $10.5 million, from a net cash position at the start of the half of $9.6 million. The net debt position was further impacted by late receipts expected during the half that were not received until February 2025.
The order book was up 22% to $224 million led by strong demand in the Americas, and the $35 million order for 100 trays in Chile. You can see the Compound Annual Growth Rate (CAGR) growth of 28% since 1H FY2021, as investments in sales and marketing pay off.
Source: Austin Engineering FY 2025 H1 Financial Results Presentation
Company guidance is for FY2025 revenue of approximately $350 million, up 12% from FY2024.
Underlying FY2025 EBIT is expected to be approximately $50 million, up 30% from FY2024.
Growth Areas for Austin Engineering (ASX: ANG)
I like to ask what will not change when looking at a potential investment. Dump trucks are moving to electric power, and will probably be remote controlled one day, but they will always need a tray, and diggers will always need a bucket. Trays account for 62% of revenue, 14% came from shop repairs, and 10% from digger buckets, as of 30 June 2024.
In October 2024, Austin Engineering announced it had won an order for 100 trays expected to be completed before the end of the FY2025 financial year from a Chilean miner. The contract is worth $35 million. Chile and Peru are the first and second biggest producers of copper globally.
While this is just one order, Austin is focusing on South American copper miners, which could prove fruitful in the long run. There will be initial capital investment needed of course.
Personally, I am bullish on copper – the highly conductive metal will be crucial for power grids, data centres, decarbonisation, and the general electrification of the world.
I am also bullish on gold and gold miners, (which account for 17% of revenue) as elevated central bank buying appears likely to continue, the US dollar declining as high US debt and the trade war weigh. Plus, I think there are many retail investors yet to join the rally.
Though it is a very unpredictable future at present, and we should not rely too heavily on any forecasts about the economy or commodities. First and foremost, company quality is paramount.
Austin picked up its first significant Indian order for trays from a Tier 1 producer in December 2024. A full-time employee has been appointed to India to advance sales and to oversee the order. India is the fourth largest producer of iron ore, and a fast growing economy.
Of course, acquisitions are always a way to grow. Management advised in the 1H FY2025 report that while they are looking at potential targets, there is nothing specific that warrants disclosure. Obviously, this sort of growth by acquisition is capital intensive, and organic growth is preferable.
Risks for Austin Engineering (ASX: ANG)
The major risk is the cyclical nature of commodities. Mining and mining services customers account for 78% of revenue. 33% of revenue comes from iron ore, followed by copper at 19%, and 17% from gold. Downturns in commodities prices may mean less exploration and new projects, hence less spending on equipment.
There is some key customer risk present with the largest customer accounting for 26% of revenue, and the top five customers providing half of the group’s revenue. Austin has a good customer retention rate of 89%, but business is business and a major customer will leave if a better arrangement can be found elsewhere.
Operating in the US, Austin is not immune to Trump’s trade war. Management put out a statement in February advising they had repositioned operations to mitigate the impacts on imports from Mexico, and exports to Canada from the US, in anticipation of Canada’s retaliatory tariffs on US goods. Austin uses subcontractors in Canada for final-assembly builds, and has now started using sub-assembly builds in Canada as well. Austin has also ceased importing sub-assembly trays from Mexico to the US.
Steel and other raw materials are a major input cost. Iron ore is a major raw ingredient of steel. Raw commodities prices fluctuate, and higher ore prices flow through to steel prices, lowering margins.
Is Austin Engineering (ASX: ANG) a Buy at These Levels?
Austin Engineering has seen higher revenue growth since 2021, as management initiatives prove fruitful, coupled with an impressive and growing order book.
This is a dividend paying company that could benefit from growth in new markets and rising commodities prices.
The group does have some Intellectual Property (IP), but despite this I don’t see any moat, and often intellectual property is not as solid as one thinks.
Longer-term however, no major catalyst for above average growth is present that I can see – unless commodities prices have a sustained bull run, which leads to demand for more mining equipment.
There are also a few uncertain temporary factors like the US trade war, a new CEO, and the amount of capital expenditure to support growth in new markets.
Peru is not a stable jurisdiction at present. President Dina Boluarte ordered mining activities be suspended for a month after 13 mining workers were killed in on-going clashes between illegal miners and criminals.
Ongoing factors are fluctuating steel prices affecting input costs, and commodity prices affecting demand for mining equipment.
The single digit trailing Price to Earnings (P/E) ratio of just over 9 at the current share price of 37.5c. This P/E ratio is similar to other mining services companies on the ASX. Austin is profitable and provides a trailing dividend yield of just over 3.6% or around 5.3% once you include the value of franking credits.
I think there are other better dividend paying ASX small caps that service the mining industry, but also have operations in other sectors providing some diversification of revenue, which I think would make safer investments. Hence, I (Chris Coe) will just keep Austin Engineering on the watchlist.
Editor’s note: Thorney Investment Group Australia Pty Ltd and Thorney Opportunities Ltd are substantial shareholders of Austin Engineering just like Xref (ASX: XF1), Dubber (ASX: DUB) or Adacel (ASX: ADA) fared. Take a look at how minority shareholders in those companies fared.
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Disclosure: The author of this article Chris Coe does not own shares in ANG, nor does the editor. Neither the author nor the editor will trade ANG shares for at least 48 hours following the publication of this article. This article is not intended to form the basis of an investment decision and is not a 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 Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. A Rich Life does not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.