Why do Perennial think ANG is interesting at this point in time
Valuation: The stock is on 12x PE and 9x EV/EBIT in FY19 on Perennials numbers. The share price has tracked sideways despite a strong result in February 2018 which saw them deliver $12.2m EBITDA (ahead of guidance of $10-12m).
The successful turnaround of Austin is being led by a new management team with a history of success in their previous roles. Chairman Jim Walker is ex Westrac and MD Peter Forsyth is ex Caterpillar.
Balance sheet de-gearing: Debt should start reducing materially now working capital has normalised, Perennial forecast debt to drop to 0.6x Net Debt/EBITDA.
Product Cycle: Truck tray sales peaked for ANG in 2012 and 2013, there is a 5-6 year design life for each tray. Thus, the replacement cycle for these old trays should start to flow through to earnings in FY18 and FY19. Assuming the majority of ANG’s customers re-order which Perennial thinks is likely given strong iron ore and coal production volumes in response to recovering prices over the last 2 years.
Perennial view ANG as a turnaround story which has already delivered two strong halves of improved profitability and has the benefit of a strong tailwind in the form of a recovering mining sector.
ANG Price at posting:
23.8¢ Sentiment: None Disclosure: Held
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