The Australian share market changes in composition all the time, but it is still dominated at the high end by resources, financials and healthcare. The question is often asked, where have all the manufacturers gone? They do exist: here are three great examples of listed companies taking Australian manufacturing prowess to global markets.
This trio of companies are also excellent examples of founder-led businesses on the ASX, where the founders and their families run the companies, and retain significant shareholdings: many investors prefer this high level of alignment with investors’ interests, in comparison to companies run by professional management teams, which can suffer from high turnover of executives.
PWR Holdings (PWH, $8.87)
Market capitalisation: $890 million
12-month total return: 6.5%
3-year total return: 30.1% a year
Forecast FY24 dividend yield: 1.7%, fully franked (grossed-up. 2.4%)
Analysts’ consensus price target: $10.78 (Stock Doctor/Reuters, eight analysts), $11.21 (FN Arena, four analysts)
When former racing car driver Kees Weel hand-made his first radiator in 1982 on the Gold Coast, he could hardly have dreamed of building the business he has: PWR Holdings is now a household name in the global motorsports industry, supplying high-performance aluminium radiators, inter-coolers and oil coolers for race cars, including every single Formula 1 team, as well as a big chunk of the competing teams in NASCAR, V8 Supercars, Deutsche Tourenwagen Masters and the World Rally Championship.
Each heat exchanger built for an F1 team is a bespoke design to minimise space and weight and fit into the vehicle’s streamlined shape – and every one of them is made at the company’s Gold Coast manufacturing base.
In the December 2022 half-year, PWR generated about 49% of its revenue from motorsport customers and 26% from new vehicle manufacturers, while sales to customers in the aerospace and defence industries made up 6%. (The “emerging technologies” business, which includes aerospace and defence, now generates about 19% of revenue.)
The company is increasingly moving into supplying cooling systems for electric vehicles, and further into the defence, aerospace and marine industries, particularly in the unmanned aerial vehicle (UAV) space. The defence and aerospace order book grew by 56% in FY22, more than twice the rate (23%) of the motorsports order book. PWR recently set up a large factory in in Rugby in the Midlands region in the UK, to serve as its European manufacturing hub, its second offshore factory, after the PWR North America – Aerospace & Defence Machining Centre, which began operation in Indianapolis in September 2022.
In FY22, revenue rose 27.6%, to a record $101.1 million, while net profit surged 24.1% to a record $20.8 million, and the dividend was lifted by more than one-third, to 12 cents a share. For the year ended 30 June 2023, analysts are looking for revenue to grow by about 15%, and net profit by about 6%, as supply-chain pressures build, before easing somewhat in FY24. PWR Holdings is a fully franked dividend payer, but at this stage, the expected yield does not keep up with the market – it should be treated as a bonus that augments the total-return scenario.
PWR Holdings has been a big stock exchange success story: it floated in 2015 at $1.50 a share. It’s a great example of world-class Australian products, and analysts see it as having plenty of scope to continue growing.
VEEM (VEE, 50 cents)
Market capitalisation: $68 million
12-month total return: –0.7%
3-year total return: 4.5% a year
Forecast FY24 dividend yield: 2%, unfranked
Analysts’ consensus price target: 82 cents (Stock Doctor/Reuters, one analyst), 82 cents (FN Arena, one analyst)
Perth-based marine engineering company VEEM designs and makes high-technology makes proprietary gyrostabilisers and propellers, and valves that regulate the flow of fluids – everything from fuel, hydraulic oil, fire retardant and fresh water – on a vessel. Its products are used in vessels ranging from luxury motor yachts, ferries, commercial vessels, oil rigs, and warships and submarines.
The company is a world leader in gyrostabilisers, high-performance propellers and fin systems, and marine valve technology. Major yacht and commercial work vessel builders in Europe and North America supply VEEM propellers as standard; in the large marine gyrostabiliser market, the company says it is the “only major supplier.” (Gyrostabilisers are control systems that reduce the tilting and rolling motion of vessels in waves and heavy seas, to provide a stable platform.)
VEEM supplies gyrostabilisers to Dutch shipbuilder Damen (Europe’s second-biggest shipbuilder, and the world’s biggest builder of “small” ships) for use in work boats, which reduce rolling in rough seas and enable the vessels to operate safely in rough seas. This extends the productivity of vessels and work boat crews. In June, VEEM signed an agreement with Singapore shipbuilder Strategic Marine for the exclusive use of VEEM gyrostabilisers in the vessels it builds. The company’s stabilisers help vessel operators launch and recover large tenders (smaller boats), conduct helicopter operations, host guests and also transport work crews quickly and in comfort, an attribute that is increasingly relevant to offshore energy installations such as wind farms.
VEEM is a major defence supplier, producing components for Australia’s Collins-class submarines, the Anzac-class frigates and the Hobart-class air warfare destroyers; its latest defence contract is to provide giant propellers to BAE Systems Australia for the prototype phase of the construction of the Royal Australian Navy’s nine Hunter-class frigates, in Adelaide. The blades will be the same weight and size of those on the production Hunter class, but they will not be used on the first warship, as they will be subject to destructive testing to verify manufacturing processes. The blade casting was poured in May. With BAE being the prime contractor for the British AUKUS submarine – the base model for Australia’s new submarines – the export opportunities for VEEM on the back of this work are plentiful.
VEEM also works with fellow Perth-based ASX-listed company, shipbuilder Austal, providing ride control and propulsion work for its Evolved Cape-class Patrol Boat (ECCPB) program for the RAN and Pacific Patrol Boat Replacement Program (PPBR) program for up to 13 Pacific Island nations.
The company also supplies precision-engineered hollow bar products for industrial, mining and construction use. At its manufacturing facility in Perth VEEM operates Australia’s largest non-ferrous foundry.
VEEM is a small company that has very little in the way of analyst coverage, but it is one of the very few listed Australian companies that has products that are held globally in as high technical regard in their field.
SDI (SDI, 87 cents)
Market capitalisation: $103 million
12-month total return: 10.2% a year
Three-year total return: 10.8% a year
Forecast FY23 yield*: 3.3%, fully franked
Analysts’ consensus valuation: n/a
SDI might be a little-known stock, but it is one of the ASX’s most successful exporters, exporting more than 90% of its products overseas, to more than 100 countries. SDI is an Australian manufacturing success story, making a wide range of dental equipment and consumables, such as adhesives, alloys, composites, cements, whitening products and accessories. All of SDI’s products are manufactured at its Melbourne base, and sold through offices and warehouses in Chicago, USA; Cologne, Germany; and Sao Paulo, Brazil.
Over recent years the company has transitioned its product range as the worldwide market for amalgams – compositions of mercury and other metals for filling teeth – has declined, as newer materials such as glass ionomers, composites and professional whitening start to dominate. Ten years ago, amalgam products represented 43% of SDI’s global sales, but that proportion has more than halved, to 17%. Aesthetics and tooth-whitening products are now the business driver, representing 77% of all sales, with dentists’ equipment amounting to 6%.
SDI has a global market that trusts it for high-quality products without which dentists can’t operate; and although it does have plenty of competition, its strong brand and distribution network make it one of the ASX’s most successful global businesses. SDI currently makes 37% of its A$ sales in Australia, with 32% in Europe, 23% in North America, and 8% in Brazil.
SDI is constantly innovating to keep its position of market leadership. It is rolling-out its most transformational product innovation yet, the Stela breakthrough composite technology, which was developed in a partnership between SDI scientists and engineers from three leading Australian universities, the University of New South Wales, the University of Sydney, and the University of Wollongong. The company describes Stela as “an innovative high-performance self-cure composite that was designed from the ground up to replace amalgam.”
The Stela system has received approval from the US Food & Drug Administration (FDA), the Australian Therapeutic Goods Administration (TGA) and ANVISA (Brazil) approval: the first orders have been received first orders in non Europe/US regions, and first orders from the US came in July. Other major new product launches recently include Riva Cem Automix, an all-new resin-modified glass ionomer cement, and the Luna 2 next-generation nanohybrid universal dental composite.
In the most recently reported half-year, to December 2022, revenue was up 9%, to a record $50.5 million, with amalgam sales up 17.8% and aesthetics revenue up 8.4%. Whitening product sales were down 1.9%, and equipment sales eased 8.6%. SDI paid the same interim dividend for the first half as it did in 2022 and 2021 – of 1.5 cents – so, if it matches its 2022 final dividend of 1.75 cents a share in the FY23 result, the 3.25 cents full-year payout that would represent a yield of 3.7% fully franked, or 5.3% grossed-up*.
SDI does not attract much in the way of analyst coverage, which is a shame, because it is a great example of successful Australian manufacturing.
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