Various analysts, whilst they consider many financial quantitative metrics (QM), often differ on which metric to place the most emphasis. I used to read numerous articles by Roger Montgomery and he was (perhaps still is) a devotee of ROE. Others focus on ROI, PE ratio i.e. EV/EPS, EV/EBITDA or EV/EBIT, Gross or maybe Net MARGIN and CF. The list goes on.
Then there are numerous QUALITATIVE considerations/factors (QF). I am going to focus on just a couple.
IMO, because all are connected... all are relevant. But on which QM/QF should one focus when considering a manufacturer such as ANG?
I have owned 2 businesses. 3 if sole trading shares/commodities etc also counts. But let's focus on just the first 2 normal type businesses. My wife has been the sales manager at 2 businesses each employing some 35 staff directly and about 15 indirectly as contractors. These are stressful positions and we both agree that SALES i.e. revenue is THE most important factor. No sales equals no moolah. Period.
Obviously if your cost of production almost matches the sale price... then there is little or zero profit. But if sales revenue remains steady/dependable it is amazing how long one can keep going. But if product is not moving out the production floor or warehouse... then business failure/closure is usually inevitable.
Let's look at ANG. They custom engineer/manufacture for individual site requirements i.e. trays for very large mine trucks. (they also make mining buckets, do repairs/maintenance along with making water tankers and more recently buckets etc... but trays are 80+%). They have been making trays for over 40 years so one would expect they would have the business down pat. Yet we are belatedly told that (yet again) someone has cocked-up and badly under quoted. Komatsu has refused to budge on the agreed deal and ANG wear the consequences. Nothing unusual here. Afterall contracts are supposed to be binding.
But this is not all bad for ANG. There are pros and cons.
Cons:
ANG underquoted and failed to make any profit from this deal. Not the desired outcome for ANG.
Pros.
a) ANG were awarded what is quite likely the biggest single OEM truck tray deal in history.
b) ANG were awarded this huge deal ahead of its competitors by the equal largest (along with Caterpillar) mine truck manufacturer in the world. This demonstrates that such a huge company has faith in ANG to complete the deal to their specifications and in the specified timeframe. How many other tray makers can accomplish this?
c) It is not as if ANG abandoned the contract leaving Komatsu in the lurch. ANG will def complete their side of the bargain and I feel other truck manufacturers and huge mining companies will look upon this aspect far more favourably than the fact ANG failed in their attempt to renegotiate a better price.
Yes Komatsu and Caterpillar along with the mining giants are many multiples bigger than ANG using MktCap, but it is not simply a David and Goliath mismatch. It is the world's largest mine truck maker & miners dealing with the world's largest truck tray maker. To reiterate; 'How many other tray makers can accomplish a single order of this magnitude and nature?
Very few if any imo.
90% of ANG's sales are repeat customers. This illustrates the high customer satisfaction ANG have with their clients and the mining industry in general.
QF takeaway: ANG is a highly regarded world class brand in the tray industry.
Revenue
Almost all the focus/discussion has been on the fact that ANG have only managed to equal last FY's EBIT. BUT imo they are missing the main point namely that ANG has grone revenue each of the past 5 years and an incredible 83% in the past 3 yrs from $202m to $370m! How many manufacturers can match that? This is not a scalable IT stock which can double sales every 12 months or so... although very few in fact do achieve this. (pre-covid fy19 rev $108m vs $370m today!)
Komatsu/Caterpillar et al get one bite of the cherry each time they sell a truck. (I'm ignoring maintenance which ANG also does). But many trucks go through 4-8 trays in their lifetime giving ANG several bites from each truck in operation. It is an unusual industry. Imagine Ford/Mazda replacing their car engines every 4-7 years. Never going to happen, but these trucks... as another post will show... just keep on trucking. My friend has on occasion driven coal trucks with over 200,000 hrs on the clock! Imagine a car averaging 60 km/hr through its life. That equates to 12 MILLION kms! (mining trucks average 7,000-7,500 hrs/yr)
Recent sales. Revenue in 1HFY25 was $170m. Revenue in 2HFY25 is $200m! A leap of 17.6% in 6 months. Anualise that, then put in your pipe and smoke it.
Forecast sales/revenue. We'll need the year end report in late August for the official forecast but I think 425m revenue in FY26 is doable. i.e. a 15% gain from FY25... a growth rate below that of recent years.
Margin/profit. Of course a firm has to generate profits to re-invest and pay divs. i'm saying without the required revenue mass... profits will never eventuate. ANG has got a sound customer base. Austin needs to fix their quoting system.
ROE is important. I'm forecasting FY26 ROE between 16-20%.
It is not just about commodity prices. Again some have focused on commodity prices and it does have an influence. But it works both ways. a) Mines produce essential products. The world economy simply can exist/prosper without commodities such as coal, iron ore, copper, nickel, lithium etc etc. Tonnes of ore mined worldwide are incredible and continue to grow.
Copper is a key commodity for ANG. I recently read that Chile has produced a record amount of copper this past year. But grades have fallen substantially since Cu production really got going around 1910. BHP started their Cu production in Chile in 1990. In 2004 the 'Spence project' provided an immense boost to their Cu mines. Yet BHP's recent report states that the average grade mined in Chile is just 0.74% Cu. Others can look it up but I'm confident current grades are a third of what they were 25 years ago... maybe less. Increases in a truck's carrying capacity provide some compensation but not enough. Truck numbers worldwide are far higher than 30 years ago.
Takeaway. BHP, Glencore, RIO etc have to mine more and more ore just to maintain Cu production, let alone increase it. More ore equals more trucks equals more truck trays.
Lower grades are a worldwide trend. The richest orebodies are largely gone. Yes, truck capacity has grown but more and more trucks are needed. Many new mines are underground and these trucks require far fewer replacement trays. Nevertheless ANG does manufacture into this niche sector.
ANG's competitive advantage. I'm going to dedicate an entire post to this topic using real life examples demonstrating that ANG does have pricing power over most of its competitors. Meanwhile here is what Austin say: 'Austin's core competitive advantage is in its engineering intellectual property and deep knowledge of the world's mining industry. We provide customised products engineered to client specific requirements, that focus on the particular challenges of the mine site'.
Management. I've invested in ANG in the past and lost money. Company forecasts didn't match reality and ANG went through some hard times. Nevertheless, the business has kept growing albeit unevenly. COVID didn't help either. Nevertheless the primary problem has been senior management. CEO David Singleton retires in 2 weeks. His remake of ANG starting 5 years ago was supposed to finish this month. Overall, it has been a success but the cock-up re the OEM quote has to be his responsibility.
I'm assuming the worst is now behind us and he is leaving a clean slate for his successor.
We barely make anything in Oz these days. Do we even make a cooking pot, toaster or can opener? ANG manufactures both here and overseas. Truck trays are not just incredibly large. They are customised and complex. ANG is the world's largest and arguably equal best. We should applaud it.
Barring a world calamity I remain confident re future earnings. Hence, I have invested heavily especially since last week's update and my holding now at 39c av.
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