AML3D Ltd - Stronger Result with Good Momentum

Business model

AML3D generates revenues from contract manufacturing of components using its WAM process, sales of the patented ARCEMY WAM modules and licensing 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.

Cashflow growing contingent on order delivery

The quarterly result was captive to order timing with expenses slightly increased but revenues lower. However, business development showed promising trends with strong interest in ALM3D’s ARCEMY machines and WAM technology. Test products manufactured for the oil and gas sector have borne fruit with manufacturing on demand agreements recently signed with two large OEMs. 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 adjust our FY22 full-year estimates to match guidance of circa $2m revenues and adjust our expectations for FY23 accordingly.

Base-case DCF valuation of $65m

We’ve used the discounted cashflow methodology to value AML3D due to the company’s early stage of development. Valuation has remained unchanged with a roll-forward of one year. 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 $65.3m 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 remains 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 still at $0.75/share. This valuation will be adjusted when risk-free rates rise.