Adrad Holdings Limited

ASX:AHL

Adrad Holdings Limited

ASX:AHL
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$1.065 (0%)
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#92
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11
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Forum Topics AHL AHL Thesis for Opening Position

Pinned straw:
jcmleng
Added a month ago

Just finished watching the AHL meeting video. Will need to do a deeper dive to full understand the company but rather than get stuck with analysis paralysis as I normally do, have opened a small position both IRL and in SM today.

Thesis

Main thesis points for me from the call as well as @Strawman and @Tom73 's points:

  1. The focus of the business is way, way beyond radiators - as Daryl put it "anything to cool anything down". So cooling systems for trucks, data centre gensets, power generation stations, VLine diesel trains etc. and the strategic direction is to remain very focused in this space (vs veering into more general aftermarket parts, which they are trying to reign back)
  2. Very well positioned for the cooling system-end of hydrogenisation and electrification of machines, trucks, cars - cooling is a huge issue and requirement in the greening of industrial machines, vehicles etc
  3. AHL has no direct peer in the manufacturing of "big stuff" cooling within Aust for Aust conditions for the range of products that AHL supports
  4. Are deep into AluFin technology, using aluminium instead of copper as the basis of the cooling systems
  5. Sticky customers for the main Original Equipment manufufacturing business
  6. Laser focused on improving Working Capital (lots of passion on improving inventory turns), Retun on Invested Capital and EBITDA instead of pure revenue-driven "prosperity without profit".
  7. Tailwind from moving of manufacturing facility to Thailand which is not only more cost effective, but also opens up access to Asian markets down the road.
  8. Stacks of cash, dividend paying, providing some stability to my current heavily-skewed-to-growth-centric portfolio - very nice to hear that they do not need an equity issue as they have "so much cash".
  9. Share Price has come well off the highs of $1.625, with the low thus far of $0.67, $0.90 seems like a decent entry point


Some Immediate Risks

  • Not all its products are IP-protected - not cost effective. A concern initially, but they have a 40-50 year track record of existence, and Daryl took great pains to say that it takes a heck of a long time for AHL to get a OE product from design to operations, which in itself, is a moat.
  • Low free float - they are recognising this as a "problem" and have some focus on striking a better balance on this.


I didn't realise how much I missed Daryl from BAP, until you hear/see him back in action again, motivated to get AHL on the rght track as a public company and setting them up nicely to grow.

Discl: Held IRL and opened trade in SM
edgescape
a month ago

Was there any comment on the transition plan or at least a feeling although I know that is a very open and "personal" question that borders on strong form efficiency?

I admit I haven't looked at the recording so maybe I should

The new CEO Kevin Boyle was COO of Quickstep holdings during 2016-2018 (highlighted below).

After the transition and when the current CEO steps back to a non-exec role (ie: doing board meetings 4 times a year) with McGurk, there is no obligation or guarantee Boyle will follow and that is the risk.

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jcmleng
a month ago

@edgescape, Daryl did talk a bit about the transition to Kevin in general terms:

  • Daryl was to have semi-retired last year but that didn't happen - he hopes to be able to go back into that semi-retired mode "sometime this year"
  • Said that Kevin had no public company experience as a CEO, and so, the plan was for Daryl to do a longer transition to ease him into that (vs a Hi, I'm outa here" approach)
  • Daryl also did say he would continue to participate as a Board member.
  • One of the things Daryl had on his to do list was to draw up the strategic direction of the company - there is no strategic plan today - he sounded like he has unfinished business on this front.


The way the conversation went, the passion that Daryl naturally has for these sorts of businesses, and his evidently hands-on approach, my immediate reaction during the video was "it was going to be interesting to see how the handover actually pans out". Much will depend on how much Daryl actually wants to step back and let this new guy run. While he was SAYING he will be going into semi-retirement, nothing in the video gave me the sense he will back off completely. Where AHL is now is in Daryl's absolute sweet spot - growing but not set up for future growth/expansion, not smart in running a public co etc.

As I see it, Daryl is both key and the hedge. If he truly wants to retire (and I don't believe that for one minute, the way he was talking !), he will have to back off and let Kevin run, make Kevin successful in the eyes of the market and therefore price himself out of a job. If Kevin does not cut it, then Daryl will keep going as he has been.

It is a risk for sure, but I feel some semblance of a mitigation plan is in place ...

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