ANO came onto my radar as one of the best performing stocks in the ASX. There’s plenty oftalk on technicals but not much on fundamentals. Here is my take for what itsworth.
Lets tryvaluing it a few different ways:
Price to Book Ratio.
We have amanufacturing company with Net Assets of around $8M. Basically the businesslooks to be a workshop where they buy in Zinc Carbonate, grind it down and thenbake it in ovens.
If youapply the ASX 200 P/BV ratio of 2.4 that gives you a valuation of $19M or aShare Price of 34c
Earnings
2018 EBITwas $1.5M - you need to ignore the tax reversal which looks like it will also beused to inflate future years earnings. If you apply a very generous EBIT ratioof 30 to account for the growth seen this year and forecast for next, thatgives you a valuation of $45M (SP 77c).
2019 EBITearnings are forecast at say $5M ($3.4M year to date as of April). You couldargue that the multiple should be higher than market average to account forgrowth or that it is a company producing a basic commodity which is experiencinga peak in demand and hence a lower multiple should be used to look through thecycle. Lets assume a market EBIT multiple of 14 which gives you a valuation of$70M (SP $1.20).
So to justify a market cap of $400M, you are assuming that a company who has been break even at best for adecade is somehow going to increase its profit by 6 times selling the same productin an industry with low barriers to entry and keep it there sustainably. Isuppose it possible, but it’s a pretty heroic assumption. If it ever happened,the return on capital would be so extreme that all competitors would just expanduntil the return on capital for the industry reached a commercial rate. Its notlike the company has a patent on zinc oxide.
My finalcomment is I’m also not sure where the claims about nano zinc oxide being reefsafe come from. Maybe zinc oxide is safe, but there are studies that show that nano zinc is toxic to marine life. I haven’t seen any push to ban them yet, but assuming the product has a 20 year life ahead of it is risky.
https://news.nationalgeographic.com/2015/05/150514-sunscreen-nanoparticle-nanotechnology-oceans-marine-beach-boat-toxic/
https://www.scmp.com/news/hong-kong/health-environment/article/2128159/your-sunscreen-may-be-killing-marine-life-hong
(20min delay)