𝛼SKAML3D Ltd: Additive Manufacturing Matures
AML3D Ltd
Additive manufacturing matures
AML3D Limited was established in 2014 to commercialise WAM® (Wire Additive Manufacturing), an additive manufacturing technology for the cost-effective production of large, high-performance metal components and structures. AL3 listed on the ASX in April 2020 at $0.20/share, raising $9m and raised an additional $7m in October 2020 to hasten the commercialisation programme. The company has established a contract manufacturing facility in Adelaide, is establishing a similar facility in Singapore and is making progress with customers for the proprietary ARCEMY® WAM® modules which are capable of manufacturing items up to 6m long – a significant increase in scale relative to most competing technologies. In our view, AL3 has invested resources in customer development which are on the verge of converting to an increase in manufacturing and machine sales. We initiate coverage with a base case DCF-derived valuation of $71m or $0.475/share (against a reference price of $0.145/share) and expect well-developed customer relationships to push AL3 to higher levels of production.
Business model
AML3D generates revenue from contract manufacturing of components using its WAM process, sales of the ARCEMY® WAM® modules and licencing revenue from these sales after the first year. The company has a manufacturing facility in Adelaide, additional capacity under development in Singapore and a strong level of interest in machine purchases due to the large scale possible using the WAM® technology.
Momentum building in 2021
During 2021, AML3D completed the construction of an expanded manufacturing facility in Adelaide allowed commissioning of seven production cells and recruitment of additional experienced staff. Momentum continued with a development programme with Lightforce for titanium body armour progressed; collaboration and partnership agreements were reached with AdditiveNow and others; test products were delivered to clients in the Marine (Austal) and Aerospace (Boeing) sectors; AL3 entered research partnerships with Flinders University and CSIRO, and .and has recently announced a joint R&D presence with BAE at Tonsley tech park. Two ARCEMY® modules were sold in the financial year with a third confirmed post year end.
Base Case DCF Valuation of $71m with Upside to $124m
We’ve used discounted cashflow to value AML3D due to the company’s early stage of development. Negative free cashflow was reported in 2021 and is expected in 2022 and 2023. We expect strong free cash generation thereafter. Using a WACC of 11.1% (Beta 1.5 vs measured Beta of 0.21, terminal growth rate of 2.2%) we derive an equity value of $71m or $0.475/share on the current issued capital of 150.4m shares. Our base case is premised on announced agreements and customer interest levels with a conservative conversion rate of customer inquiries to manufacturing and machine sales. We have additionally modelled a better and worse profile of future sales based on estimates of market penetration over time. We feel there is considerable upside possible in this valuation with our high valuation at $0.829/share.
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