In Brief: Bisalloy Steel, Attura & Lindsay Australia

This story features BISALLOY STEEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BIS

Peek into the smaller market cap end of the share market with brokers’ offering ideas across a range of industries.

-Bisalloy Steel reaping the benefits of new management
-Attura grows profits via add-ons
-Lindsay on the road to recovery

By Danielle Ecuyer

Quote of the week comes from the FT’s coverage on Trump’s proposed economic reforms:

“Trump’s victory will ensure a lower tax environment that should boost sentiment and spending in the near term,” said James Knightley, economist at ING Bank. “However, promised tariffs, immigration controls and higher borrowing costs will increasingly become headwinds through his presidential term.”

AUKUS submarines a potential boost for Bisalloy Steel

MST Access has initiated coverage on Bisalloy Steel Group ((BIS)), Australia’s only domestic manufacturer of quenched and tempered steel plate, competing with Swedish company SSAB. The high-strength, wear-resistant steel plate is used by original equipment manufacturers as well as for replacement equipment in the mining industry.

Approximately 70% of the steel plate is used in the mining sector, primarily for iron ore and hard rock in truck trays, chutes, and ore processing mills. The company also has exposure to gold, copper, and coal. Mining generates 80% of sales, with tray bodies representing 61%, buckets 10%, and chutes 4%.

A new haul truck requires an installed tray before entering service, and trays need replacing every four years in iron ore and hard rock applications, and every seven years for coal mining. Buckets are used in material loaders, with a lifespan of about one year for iron ore/hard rock and two years for coal.

In defense, armour plate is used in land vehicles and submarines. Bisalloy is the sole supplier to the Australian defense industry for land vehicles and is conducting the qualification process for AUKUS submarines. Defense represents 6% of sales, with other sectors accounting for 11%.

Bisalloy holds a 38% market share in the quenched and tempered market, which has been stable. The company has a joint venture in China with Shandong Iron and Steel Group Co, generating around 15% of net profit in FY24, alongside majority-owned distribution companies in Indonesia and Thailand.

MST Access reports the new management team, in place for three years, has improved safety and performance while reducing the company’s debt.

The broker has assigned a Buy rating with a $5.58 valuation, compared to the current share price of around $3.60, at a price-to-earnings ratio of about 9.5x and a forecast 6% dividend yield for FY25.

The company’s balance sheet is described as “pristine” with a net cash position of $6m, enabling M&A opportunities, MST suggests. Substantial shareholders own 30% of the stock, with a market cap of $165m.

Can an acquisitive strategy deliver a re-rating for Attura?

Moelis delves into Attura’s (ATA) inaugural investor day, where management announced three potential acquisitions and a capital raising.

Attura, listed in 2021, has a market capitalisation of around $430m. The company is an end-to-end IT services and consulting group assisting businesses in extracting value from data, technology, and people.

As per the broker’s research report, Management’s proposed acquisitions are in advanced discussions, aiming to broaden the customer base by adding over 1,000 clients to the network, creating cross-selling opportunities.

The acquisitions would also enable geographic expansion, increase market share in A&NZ, and introduce “unique” service offerings to generate quality revenue streams with high retention rates.

Attura expects successful acquisitions would be earnings accretive, costing an estimated -$45m, generating revenues of $22m-$30m in FY25, and delivering an underlying EBITDA of $3m-$3.5m, with a midpoint margin of 12.5%.

Funding is through a two-tranche placement at approximately $70.5m and a share purchase placement of an additional $6.1m. New shares offered at $1.05 represent around a -4.5% discount to the last traded price of $1.10.

Moelis believes the acquisitions represent a significant step-up in the company’s inorganic growth strategy. While the acquisition strategy is a net positive, it also increases risks around execution and integration, though the analyst notes management’s strong track record.

Moelis has a Buy rating and a $1.31 target price, with the stock trading at a 16.6x price-to-earnings multiple, which is not viewed as excessive. Successful acquisition and integration of the three businesses could result in a valuation re-rating.

Positive signs horticulture markets are improving

Wilsons highlighted Lindsay Australia’s (LAU) 1H25 AGM trading update, which confirmed what the broker describes as “welcome confirmation” of the ongoing recovery in the horticulture market following negative wet weather impacts in FY24.

Horticultural volumes rose 6% compared to the previous corresponding period as recovery from wet weather continues. Management confirmed gradual improvements in the rural and regional transport business, with commercial volumes rising 5% from the prior year.

The analyst views the update positively, especially in the context of Coles Group’s ((COL)) and Woolworths Group’s ((WOW)) softer-than-expected 1Q25 trading upgrades.

Wilsons has a Buy-equivalent rating with a $1.24 target price. The stock is trading on an FY25 forecast price-to-earnings multiple of 7.8x with a 5.2% dividend yield.

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