Last year and this year have been tough environments for initial public offerings (IPOs), in particular industrial ones, which have been very scarce. But investors can benefit from the bad experience of IPO subscribers, who have watched the share prices sink in the market, and potentially take advantage of a bargain. Here are three recent floats that have struggled in share price terms, while arguably, their business propositions have actually improved during their brief listed lives.
- Chrysos Corporation (C79, $4.44)
Market capitalisation: $436 million
Listed May 2022
Estimated FY24 (June) dividend yield: no dividend expected
Analysts’ consensus valuation: $5.70 (Stock Doctor/Refinitiv, three analysts), $5.70 (FN Arena, one analyst)
Let’s cut to the chase – Chrysos’ underwriters got the price wrong. The mining technology stock came to the market in a $183.3 million raising at $6.50 a share in April 2022, but that was more than the market could stand. The stock was not helped by interest rate rises in Australia and the US unnerving the market, but the upshot was that it immediately sank 40%, to $3.90, representing a 40% tumble. Chrysos has never been able to get anywhere near its issue price, with a high of $5.20 in May 2022 and a low of $2.25 in December 2022. However, it looks quite attractive now.
Chrysos is a mining technology company with a flagship product PhotonAssay (developed by the CSIRO, which owns 22% of the company) which delivers faster, safer, more accurate and environmentally friendly analysis of gold, silver, copper and other elements. PhotonAssay uses high powered X-rays to bombard rock samples and activate atoms of gold and other metals. A highly sensitive detector then picks up the unique atomic signatures from these elements to determine their concentrations. The process offers mineral analysis data in minutes. The testing units are about the size of three shipping containers positioned side-by-side.
The company makes the assay machines and leases them to miners, explorers and laboratories under long-term contracts (usually five years with another five-year option) with customers paying per sample processed. Existing customers include three of the four largest laboratories and two of the three largest gold miners by market capitalisation globally.
CSIRO began development of the PhotonAssay technology in 2001, reached prototype stage on 2012 and the first customer started using it commercially in 2018.
Chrysos certainly does not under-sell its technology: the company says PhotonAssay represents “the first major advancement in gold assaying in centuries,” and aims to displace the existing fire assay method.
Further, Chrysos says there are “no known viable competitors,” and PhotonAssay is
Uniquely placed to solve a broad range of operational, economic, safety and ESG challenges currently facing mining and exploration companies. Quite simply, it offers better, safer, lower-emissions, faster and cheaper assays, in an area of the mining value chain that is “non-discretionary” spending for the mining industry.
It is early days for Chrysos in market penetration. It estimates that it has a total addressable market of 610 units around the world: at the December 2022, it had 15 units deployed with customers, and 49 contracted units. On those numbers the company has committed to lift its manufacturing capability from 12 units a year to 18.
At its first financial milestone, 30 June 2022, Chrysos outperformed its prospectus forecasts, delivering total revenue of $14.3 million in its first year of listing, up 215% on FY21, and earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.45 million, 57% higher than prospectus guidance.
Then, in the half-year to December 2022, total revenue more than doubled, to $11.5 million, while EBITDA rose almost 15 times, to $630,000. Total contract value (the lifetime value of current contracts) stands at $714 million.
The company says it is on track to meet FY23 prospectus forecasts, which projected total revenue of $26.6 million, EBITDA of $3.2 million, and 21 deployed units worldwide. Chrysos also expects its FY23 target of 21 units deployed will be achieved early in the first quarter of FY24.
Chrysos is well-funded for sustained growth, with $81 million of cash in the bank and an expanded $30 million debt facility with Commonwealth Bank. Broker Shaw and Partners describes the Chrysos business as “a compelling market penetration story that is rapidly de-risking the longer-term potential.” Subscribers to the IPO have reason to feel aggrieved, but at the current price, Chrysos offers investors a potentially exciting ride on a world-leading Australian technology story that its industry customers like, with every indication that it can become the new industry standard around the world.
- Adrad Holdings (AHL, $1.00)
Market capitalisation: $81 million
Listed September 2022
Estimated FY24 (June) dividend yield: 4.5%, fully franked (grossed-up, 6.4%)
Analysts’ consensus valuation: $1.70 (Stock Doctor/Refinitiv, two analysts), $1.70 (FN Arena, two analysts).
Adelaide-based Adrad specialises in the design and manufacture of heat exchangers for industrial applications, and the manufacture, import, and distribution of vehicle parts for the aftermarket in Australia and NZ, and for original equipment manufacturers (OEMs) globally. Many of its customer relationships go back four decades.
Adrad supplies radiators for heavy vehicles used in mining and heavy industry by companies including Kenworth, Caterpillar and Terex Cranes; and also supplies industrial cooling systems that keep large data storage centres and heavy industry systems cool, 24 hours a day, and provide back-up power generation infrastructure for office buildings and hospitals. Revenue is split about half between the vehicle radiators and the cooling systems.
The company has headquarters in the Adelaide industrial suburb of Beverley, with another manufacturing facility in Thailand, and operates 46 workshop outlets for radiator repairs around Australia under the Natrad brand. About half of its $135 million in annual revenue comes from selling radiators to the automotive aftermarket through mechanics and workshops. It has also introduced alternators and brakes into its automotive aftermarket business.
Like Chrysos, Adrad floated at a turbulent time for share markets – in case, September 2022 – but it did manage a small premium to the issue price of $1.50, at $1.55 – but sadly, that was as good as it got for subscribers. Adrad now stands at a 31% discount to the IPO price.
The company has excellent scope to grow. It says there are more than 20 million vehicles with radiators in Australia, and the penetration of electric vehicles was still low – meaning that there are still decades of business in what Adrad calls “legacy vehicles” in Australia. It also has major potential growth markets in data centres in South-East Asia, and in cooling systems for hydrogen fuel cells.
In the first half of the current financial year, Adrad did better than expected, with both divisions delivering strong earnings growth. Revenue was up 7% to $68.3 million, normalised EBITDA was $6.9 million, and interim net profit was $1.9 million, enabling a fully franked interim dividend of 0.7 cents a share. Adrad’s guidance is for full-year revenue to be “at the high end” of a range between $135 million and $140 million, or about 10% higher than FY22, and EBITDA of about $16 million, similar to FY22 ($16.4 million). The balance sheet remains very healthy following the IPO, with net cash of $13.2 million (including $10 million in a term deposit).
The company is doing good things with expanding the product range and the distribution network in Australia, and leveraging the second factory in Thailand to support growth over the long term. Adrad is not a widely followed company, but the analysts who did cover it see it as offering very good value, trading at about 7.3 times expected FY24 earnings and on an expected FY24 dividend yield of 4.5, fully franked.
- Acusensus (ACE, $3.42)
Market capitalisation: $172 million
Listed January 2023
Estimated FY24 (June) dividend yield: no dividend expected
Analysts’ consensus valuation: n/a
Acusensus is a unique business on the stock market: it is a technology company that designs and develops artificial intelligence (AI)-enabled road safety solutions. The company has designed, patented and commercialised camera technology that detects distracted drivers who are illegally using mobile phones while driving – a problem the company says causes two in three road deaths – and has expanded its technology offering to address other traffic areas such as speed, seatbelt usage and registration/number plate review, railway crossing compliance, and “smart freeway” compliance.
The Acusensus fixed cameras can operate at night and in almost all weather, capturing high-quality images as evidence for both enforcement and prosecution. Like other AI products, the Acusensus system “learns” from continuous feedback, helping the developers to improve and develop new models.
The problem of mobile phone usage by drivers is the initial growth opportunity; Acusensus says it is the “world-first provider” in a $1.8 billion detection and enforcement market around the world. The company’s major priority is to continue to roll-out its “Intelligent Eyes” mobile-phone distracted driver technology globally, to take advantage of its first-mover advantage, while also addressing the other road safety challenges, which broaden out to a $7.6 billion traffic enforcement market.
Acusensus says the impact of a full-scale enforcement program targeting driver distraction has been proven by New South Wales, which introduced Acusensus technology in late 2019, and has seen phone usage by drivers decrease by six times, and road fatalities fall by 20%. New South Wales now has the lowest road fatalities per head of population of all the Australian states.
The company now has long-term annuity revenue in the form of $137 million worth of multi-year Australian service contracts for the enforcement of mobile phone (New South Wales, Queensland, ACT) and transportable speed (New South Wales and Queensland).
In addition to the Australian contracts, Acusensus systems are deployed in pilot and demonstration projects in New Zealand, the USA, the United Kingdom, Canada, India, South Africa, Belgium, the Netherlands and Spain.
Acusensus raised $20 million at $4.00 a share in its January 2023 IPO, valuing the company at just over $100 million. It plans to use proceeds from the capital raise to advance research and development. After its first month on the share market, ACE had slid to $3.00, but it has recovered to $3.42.
Acusensus brought out an impressive December 2022 half-year result, with revenue up 92%, to $19.8 million; EBITDA up five-fold, to $2.2 million; and net profit of $100,000, compared to a $900,000 net loss a year earlier. On the back of that, the company lifted its full-year FY23 revenue guidance from $40 million to between $41 million and $42 million, and lifted its EBITDA guidance from “at least $3.2 million” to “between $4.7 million and $5.1 million.” It told the market that second-half performance was expected to be stronger than previously anticipated due to positive contract developments. The financial position is healthy, with cash and cash equivalents of $24.6 million more than sufficient to fund global growth prospects and product development initiatives.
It is difficult to find any analyst coverage of Acusensus, but at the very least, it looks to be a highly interesting potential global growth story. And if you happen to be a strongly ESG-focused investor, what better ‘S’ credentials can a company boast than demonstrably saving people’s lives?
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