Pinned straw:
I thought i'd kick things off with some background history on the business. Partly because it's interesting in and of itself, but also because i think it's somewhat relevant to understanding the merits of their strategy.
The story starts in way back in 1993 when a guy named Simon Shepherd founded a little firm called Alderley Materials in the UK. At the time, the biz was all about using phenolic chemistry to create durable, heat-resistant materials that you could wrap around industrial equipment to keep it from melting in a disaster. And that tech is still pretty much the secret sauce inside a lot of their products today.
The real turning point for the business happened in 2008 when Andrew Bennion, the current CEO and the guy we interviewed last week, teamed up with Simon to lead a management buyout. This was at a time when the business was doing only $6m in revenue and had a dozen staff working in a converted railway shed.
From what i can tell, they seemed to have built a good reputation with some of the larger oil & gas players (eg Chevron and Shell) for being good problem solvers and catering to a range of niche issues. But the masterstroke (or just good fortune) was somehow managing to get their proprietary materials written into the global design standards of these giants, which essentially locked them in as the preferred supplier for future projects.
Back then, a lot of the work was focused on deep water oil and gas, providing subsea insulation to pipes and valves so you could keep oil flowing in the freezing depths of the ocean. That, and the provision of super tough fire and blast walls, panels, and "jackets" for offshore rigs. There was a big safety aspect to this, with these solutions ensuring that critical equipment could survive a jet fire or explosion long enough for personnel to evacuate.
Another key part of their success seemed to be associated with their reputation for going the extra mile. Unlike most providers that just shipped the product, these guys were known for a "supply and apply" service, where they would send specialised installation teams to fabrication yards all over the world to ensure their tech was installed properly.
In short, they made their name by taking on the specialised, high-risk, engineered to order jobs that were too small for the massive conglomerates to focus on, but too complex for anyone else to handle.
Over the next decade, they went on a bit of a tear. Having experienced the lumpy nature of work in oil and gas they started diversifying into other sectors like renewables (largely offshore wind) which they did through a large number of bolt-on acqusitions.
(This is relevant because acquisitions remain a key pillar of the current growth strategy. So it helps to know they seem to have good form on that front).
They had a stint with private equity between 2014 to 2024, and although that helped fund some growth they still found it too restrictive (as Andrew mentioned in our chat). So in mid-2024 the management team bought out their private equity partners and again took full control of things. All of this builds the case that these guys are not about engineering a quick and lucrative exit.
Instead, i get the sense this is a very experienced, hands-on management team, with significant insider ownership and a track record of successful acquisitions and profitable growth:
That pretty much brings us to today. With the business still on track for growth, a decent order book, a strong balance sheet, decent tailwinds and a very aligned owner-operators. They do have the ability to divest more of their shares later in the year, and again next year, so something to watch (although a bit more free float wouldnt be a bad thing).
Some of the more interesting points from my jottings taken from the Strawman interview (I.e. primarily in the CEO’s words):
AIH is a materials science company specializing in development, design, engineering, manufacture and installation of mission-critical products that protect mostly cabling in deep sea situations, in some of the world’s most highly regulated safety critical projects.
Their moat is built on qualification of products (takes years and is a huge barrier to entry); IP (presumably on the chemistries of their products); established customer relationships & reputation.
AIH’s area of expertise covers primarily undersea, deepwater cabling, connectors, and protections, fenders, communication cables is a new area, some defence work.
Market cap is ~ 355 m. They currently have a 200 m order book = contracted commitments for that amount. On diversification of customers – the single largest ~ 16% revenue. They have been deliberately expanding customer type - originally mostly Oil, but now that’s only 55%, rest is LNG, industrial and OS wind farms
One comment I took particular note of was that as well as via the outcome of the ME war, they see macro tailwinds coming from offshore wind farm buildout in UK, EU, Taiwan and Korea. More, floating wind farms had a 4x higher AIH-related spend than other stationary types of offshore wind farms. I’d heard that the floating option is the one most likely to be deployed around Australia. I checked with Gemini about where floating wind farms were located and it said:
So it seems that floating wind farms is an expanding sector from which AIH is likely to benefit, potentially significantly as another outcome of the war is likely to be a kick-on with global renewable energy projects.
I liked that, going forward, they have a major energy use case beyond just oil and gas.
Definitely an interesting company and no doubt time and their performance will give us all a better handle on the quality of their earnings. I’m looking forward to hearing what the wise owls on here can unearth.
@Strawman what we need to understand is what is their presence in middle east & are they approved vendors with aramco
qatar energy
adnoc etc
when i used to work in middle east the preapproval was a big thing because during tight project schedules nobody has time to test a new vendor.
need to understand whats their diversification across indutry & geography.
its a food tail wind story for rebuild after iran war in middle east also push for offshore activities spiking up as a reuslt of 100 $ crude.
It's an interesting one Andrew.
I've had a bit of a look and a few observations...maybe risks etc that come to mind:
- Listing on the ASX without any Aussie presence? I don't usually love that but if they pick up Matrix that will help. Plus the holes and homes thing we've got sort of aligns with their shtick. Also, at their size they may scrape into more of our indexes than they would in the UK or US. I can give them a pass on that.
- Related FX risk.
- They're VERY new and there's minimal history, but sometimes you can get some telltales. Their Retained Earnings was GBP 7.2 million in FY22. That feels a bit underwhelming for what would be close to 15 years of trading. Now it's grown substantially from then but largely because of a gain on purchase (14.4 million) and some sort of a "gift" made to the company by a shareholder (29.4 million) i.e. it's not growing from the rivers of gold it's earning.
- I wonder the impact of higher oil prices on them. On the one hand if a "drill baby, drill" mindset sets in, it will be tailwind. But in the short term I suspect their margins are going to get crunched by the cost and availability of resins and other oil-based derivatives that make up their product suite.
They listed the following as risks in their Prospectus (the first now appearing to be an opportunity):
Anyway, it's worthy of a look and I'll be interested to hear the thoughts of others. It goes onto my watchlist.