FBR Ltd. (ASX:FBR or OTCMKTS:FBRKF) is an Australian robot maker serving theconstruction industry. The company is now emerging from its development phase andjourneying to its profitability phase—quite literally. Its key innovation, the Hadrian X robot,has been loaded onto a ship in Perth, Australia, and is expected to arrive in July at a port inFlorida, where after clearing customs it will be tested via the building of up to 10 homes.
But here’s the thing investors would be wise to consider. The robot has already been amplytested in Australia, where home-building conditions do not meaningfully differ from the U.S.And because this genuinely revolutionary product is a) patent-protected, b) has no currentpeer and c) serves a purpose for which there is a desperate need d) in a market that isenormous and e) benefits from a strong financial backer with a market-leading presence inthe U.S., FBR stock, now priced at 0.02 per share, has nowhere to go but up, andsubstantially so, with the Florida-testing catalyst close at hand. A key additional point is f) theproduct’s profitability.
FBR’s Hadrian X robot is a bricklaying plant mounted on a truck; large blocks are loaded intoan opening in the back of the truck, If necessary it also has an internal saw capable ofcutting the bricks precisely, Then a conveyor belt conveys to the end of the truck’s boom.After a 3D CAD model signals the precise design, Hadrian X gets to work like only a robotcan, disrupting a craft that has not changed in 6,000 years of bricklaying because of humanphysical limitations that have required a slow pace of work. Hadrian X can precisely layabout 300 bricks per hour, about seven times the rate of an average bricklayer. Because it isstronger than a human and starts with the large blocks, Hadrian X achieves an output rate of24 times that of an average bricklayer.
In fact, the machine is designed to work with still larger blocks that are not yet on the market,And in the future when materials companies start producing them (and Hadrian X willencourage such production), the robot would outperform the average bricklayer by 46 times.So what a bricklayer accomplishes in assembling the walls of an average house in twomonths, Hadrian X can complete in one 9-hour shift. In business, time is money, andreducing construction time to such an extreme degree releases resources for other projects,while lessening insurance and other frictional costs of doing business. Relatedly, FBRutilizes a special glue instead of the traditional mortar to achieve a faster drying time so thatthe machine can maintain its rapid pace of bricklaying.
A. FBR Has Heavily Invested in Developing and Protecting its Intellectual Property
Each new FBR patent gives the company up to 20 years years to gain a strongercompetitive edge—enough to place a very wide moat between it and rival builders. Thecompany already owns 131 exclusive patents and has 127 patents pending. FBR has shownno signs of fatigue in its efforts to refine and safeguard its technology and is continuouslyregistering new patents.
B. No Need to Fear the CompetitionFBR is not the only company trying to disrupt traditional bricklaying, but its competitors havenothing to brag about. These competitors boast alternative business models, but whenclosely examined it is apparent that FBR is lightyears ahead of them.
One attention-getting model is that of 3D printing. ICON leads this field. But it takes them afew days to set up the infrastructure and then a few weeks to build the home, after which itmust dismantle the infrastructure. This doesn’t save much on building costs but does cut theamount of time by about 30 percent. FBR, in contrast, can complete the construction of ahome in a single day, saving enormously on both homebuilding costs and time. Before ICONhas finished setting up the infrastructure, FBR is already deep into its next home. And interms of the product’s quality, 3D-printed houses have a lot more problems than the standardbrick houses that FBR builds.
A company called Construction Robotics has developed a robot called SAM, short for“semi-automated mason.” Building only straight walls, and limited to just small blocks, andwith a speed of 200 to 300 small blocks per hour, SAM is not in the same league as HadrianX. Construction Robotics has also developed MULE, a separate tool designed to lift heavyblocks, which is already a part of Hadrian X’s repertoire.
A Czech company has developed a small robot called "zdicirobot." This robot is currently inits early stages of development. As of today, it achieves a speed that is twice that of anormal builder, Which puts them far behind.
Dutch start-up Monumental has an impressive website explaining its new constructiontechnology. The only thing is it has no product yet.
For now (and given its solid inventions and patents, for a long time to come), FBR has acommanding edge in advanced construction tools and technology.
C. The Global Construction Market Desperately Needs Hadrian X
The incumbent construction-industry players who make the bricks, mortar, concrete slabsand other masonry products in a trillion-dollar per annum global market require a roboticsolution soon because of a shortage of bricklayers that grows more acute over time.
The average age of a bricklayer today is around 50. Young people are not eager to enter thisprofession. The shortage is mainly filled by foreign workers and the quality of work is indecline, while wages—because of the labor scarcity—are going up. (Although, at the rate offoreigners entering the U.S., it may be possible to rely on foreign workers in this matter.)
Environmental and safety regulations are also a growing concern. Governments are trying toreduce air pollution in general, and in this industry specifically. Hadrian X reduces pollutionvery significantly. And the construction industry is an extremely dangerous industry, and thestage of construction involving the laying of large blocks is one of the most dangerousstages because of falls and dust inhalation. Hadrian X’s robotic strength allows it to liftblocks that are not a comfortable weight for humans to carry, thus allowing it to achievefaster and safer home completion. With these various labor, wage and regulatory pressures,and without a robotic solution, construction companies face survival risk as the world goes ofnecessity to prefabricated walls and 3D printing.
For all these reasons, FBR’s biggest supporters are block manufacturers such as Australia’sBrickworks, which has purchased close to 20% of FBR’s shares, and Dublin-based CRH, ahuge player in the U.S. market that is conducting the upcoming demonstration in Florida andwill purchase FBR robots based on how the test goes.
D. The Construction Market is Enormous
If theoretically—just to get a sense of the potential market—FBR would dominate the globalhome-construction industry, it would be building 3.3 million houses a year, built by 13,000active robots, and the company would have a net annual profit of $50 billion. If FBRdominated the U.S. market alone, it would be building 1.2 million houses a year via 5,000robots at a net annual profit of $19 billion.
These are fanciful figures, but it is within the scope of imagination to envision FBR capturing10 percent of the U.S. market, which would require 480 active machines. That would giveFBR annual revenue of $2.4 billion and profit of about $2 billion, which they would have toshare in some way with their financier, a critical role CRH appears to be taking on.
E. In CRH, FBR Has a Very Resourceful Financial Backer
CRH is a large company that brings in about $40 billion in annual revenue, most of whichcomes from its North America business . CRH’s Americas Division, sponsor of the upcomingFlorida demonstration, made a sweet deal with FBR—Sweet because the financing of theserobots, apart from the profit they will get from the partnership with FBR in revenue from therobots, it will also increase the company's income and help it stay relevant in theconstruction market that is looking for alternatives.
The contract gives CRH an option for a partnership of up to 300 machines. If the companywants to exercise its option but in a more cautious way, it can participate in 20 machines andthen continue in stages. If the 20 machines reach a certain output stipulated in theagreement, another 40 machines will be ordered. If these 40 machines reach a certainoutput, another 40 machines will be ordered. These steps play themselves out if CRHchooses to exercise the option, after which CRH has the option to order another 200machines.
Assuming FBR demonstrates Adrian X's capabilities successfully in Florida, as has longbeen established in Australia, it is very much in CRH's bottom line interests to fund therobots and enter into a profit partnership. Financing and partnership of all 300 robots should,in my estimation, yield CRH an annual income of 300 million dollars, with the investmentamount not exceeding 500 million dollars. In addition, they will benefit from excess sales oftheir block products, which will increase their market share in the US. CRH's 300 activemachines will account for approximately 5% of the US construction market.
CRH is going to make a lot of money from this deal—A very high return on their investment.But it is important to understand that FBR still acted wisely at this juncture in setting theminimum purchase at 20 machines because at this threshold FBR moves to a positive cashflow. And with this foothold in the market FBR will no longer need to bequeath to its investingpartner such a high level of profitability but should be able to command more favorable termsin its future business dealings.
One cannot easily speculate on what happens after the agreement between CRH isexecuted, but it seems fair to surmise that CRH’s competitors will be extremely concernedabout the exclusive advantage their rival has obtained and will need to find their own equallygood alliance (which is apparently unobtainable) or cut their own deal with FBR which,again, would be more to FBR’s advantage this time.
F. Profitability
As noted, FBR’s product bears advantages from an environmental point of view, but this isnot a green company that prospers because of the support and subsidies it receives fromgovernmental bodies or corporations incentivized to work with it. This product is superprofitable. In fact, it is so profitable that, as noted above, it can cut in a partner like CRH tofinance its costs and share in the profits, while providing itself a path towards positive cashflow and the achievement of significant growth.
According to data found in the company’s presentations, which I assess as credible, it costsabout $1 million to produce Hadrian X, whose annual maintenance costs $175,000. Themachine has a life expectancy of 12 years.
Now let's do the math. The annual cost per machine (1M/12 + 175K) = $258,000. In addition,operation of the machine requires three workers; let us stipulate that that would cost$200,000, though it is probably less. Now we’re up to $458,000 per machine per year.
(The company's strategy is to charge a price similar to the market price of a brick-and-mortarbuilder, despite the immense added value it already provides its customers. Again, this willpresumably change with the increase in demand the future is likely to bring.)
Now assuming the construction of 250 houses per year with a conservative assumption ofbuilder’s fees of $20,000 per home (250*20K), the result would be income of $5 million. Afterdeducting the expenses ($458K), an annual profit of $4.5 million is obtained for each activemachine. (Note that in the calculation here, I did not include the additional costs any otherbusiness would have for advertising, operation, management. etc.) That’s a return oninvestment of 1,000 percent annually, making FBR a highly profitable value proposition. Andas has been noted, FBR’s continued improvements in the robot’s speed and capacity to workwith larger blocks should further increase profitability.
Conclusion
FBR has pursued a clever business model, epitomized by its agreement with CRH. Lackinga sufficient current revenue stream, FBR has enticed a well-heeled partner to establish aFlorida branch for a generous share of the profits. Time will tell whether the company will befinancially resourceful enough to alter this model or whether it will choose to continue itindefinitely, but clearly FBR’s product is so unique, so needed and so profitable that it can dothis.
In my opinion, in perhaps two years, after they have thoroughly proven their product and itsunique benefits, they will have very significant contracts with large block manufacturers. Butthe key catalyst in the company’s trajectory should come In the coming weeks with FBR’sdemonstrating the construction of 10 houses in Florida. Investors can take comfort inknowing that FBR should be easily able to perform this test well given that these aremilestones they have already achieved, according to their corporate statements. FBR’ssuccess in Florida should also increase exposure to other construction companies andincrease contract signing, and should give a commensurate boost to its share price.
FBR is at a point that I think is very attractive for investment. It has completed many years ofdevelopment and has reached the point of a proven and ready product. The company ispriced at a terribly cheap price that hardly reflects its potential. The company is small andunknown and therefore not properly valued yet it is currently in a significant leap-forwardposition, with very significant milestones in the near future.
