AML3D Ltd: Stronger Result with Good Momentum

Business model
AML3D generates revenue from contract manufacturing of components using its WAM process, sales of the patented 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. AL3 is developing three revenue streams: contract manufacturing in Adelaide, machine manufacturing and sales globally, and potentially supply of high-tech welding media for additive manufacturing and other uses.

Increasing industry interest drives cashflow
The quarterly result showed promising trends and highlighted the building interest in ALM3D’s ARCEMY machines and WAM technology in different sectors of industry. The company is focused on moving through the exploratory phase with large companies in as many large sectors as possible. AL3 aims to move the patented process from an investigative stage to a core part of logistics and production planning in some of the biggest engineering sectors. We expect further positive news before fiscal year-end. At this stage we leave our full-year estimates unchanged with several machine deliveries expected in the second half of FY22.

Base-case DCF valuation of $64.5m
We’ve used the discounted cashflow methodology to value AML3D due to the company’s early stage of development. Valuation has decreased slightly due to a rise in risk-free rates from 1.13% to 1.93% since our initial valuation. We expect strong free-cash generation from FY23. Using a WACC of 11.7% (Beta 1.5 vs measured Beta of 0.21, terminal growth rate of 2.2%) we derive an equity value of $64.6m or $0.43/share on the current issued capital of 150.4m shares. As we highlighted in our 13 October initiation report Additive manufacturing matures, our base case is premised on announced agreements and customer interest levels with a conservative conversion rate of customer enquiries 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 now at $0.75/share.