AML3D: Research Framework with Deakin University IFM

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 possibilities that large-scale use of the WAM® technology delivers.

Partnership development of alloy feedstocks for WAM
AL3 and Deakin University’s Institute for Frontier Materials have signed a framework agreement to partner in the development of new alloys, purpose developed for additive manufacturing. The agreement potentially broadens the addressable market for AL3’s large-scale additive manufacturing process (WAM), adding new industries and most importantly enabling the company to effectively address new applications such as maintenance and repair. The new alloys are expected to deliver high-strength wire for printing with limited need for post-processing - further improving the speed and economics of large-scale 3D printing as an alternative manufacturing and repair process. This agreement enables both development of new applications for WAM and likely subsequent supply of specific input materials to customers by AL3. These opportunities enhance the AL3 business case and are included in our current valuation estimates.

Base case DCF valuation of $71m with upside to $124m
We use the discounted cashflow methodology 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. A full discussion of our valuation is available in our recent initiation report Additive manufacturing matures.