Capral Limited

ASX:CAA

Capral Limited

ASX:CAA
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$8.96 (-2.1%)
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#378
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Forum Topics CAA CAA CEO Meeting

Pinned straw:
Strawman
Added 3 months ago

Just some quick thoughts following today's meeting.

Capral is in a tough business -- cyclical, capital intensive, and facing pressure from 'irrational' competitors in SE Asia that have been prone to dumping product here at below cost (effectively as a means to get capital out of their local jurisdiction -- Tony seemed to suggest it was then funnelled into residential housing investment, but let's not go there).

All that being said. During Tony's 11 year tenure, he's improved the efficiency and profitability of the business and grown revenues. The balance sheet is in excellent condition (zero debt, $60m in cash) and due to prior tax losses (a result of a loss-making expansion from 15 years ago, before Tony's time) the company wont have any tax liability for about 8 more years.

Some other points:

  • Contracts with major customers (about 70% of the total) are repriced regularly, allowing the company to pass on increasing Aluminium costs
  • Investments in value-added products and distribution have been a key part of the company's strategy, and has shown good results.
  • Government regulation and legislation has reduced the impact of dumping.
  • Not as dependent on residential construction as it was historically (was 50% now 30%), although Tony expecting good demand for construction materials given the current housing supply shortages.
  • Look for 2-4 year payback on investments. Half their CAPEX is maintenance capex.
  • The company's near death experience not long ago, a result of their failed Bremer venture, has made the company one that is very conservatively managed.

In a lot of ways, it's not the kind of business that would get me too excited. But my inner value investor can see some potential when you consider the PE of 6, a yield (unfranked) of 5.8% and the company below NTA -- a figure that tony thinks is understated due to lease provisioning (he seemed to think it was around $11.50/share).

These measures can, however, move around quickly -- a deeper dive may suggest a drop in profit or some asset write-downs are on the horizon (although nothing obvious from what i can see). But you can bet the company will be a lumpy performer.

Still, it seems cheap. What do others think?
Dominator
3 months ago

Interesting interview. Thanks Andrew. Besides the downturn in housing, dumping issues and the cyclical nature of the business I can't seem to see anything particularly wrong or at least not compensated for in the price. Lets assume some drop in profit to EBIT =$25mil, EV = $110m, EV/EBIT = 4.4, very cheap almost assumes the business is a strong chance of going out of business. Capital management by the board appears sound. Board wants to continue to buy back shares while the share price is below NTA, providing a target floor price for shares. Australia needs these types of businesses if we are going to construct the much needed housing and infrastructure we require as a nation so I don't see demand disappearing significantly in the near term.

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PortfolioPlus
3 months ago

I'm an unabashed supporter of CAA, so beware of my natural bias founded upon being a major beneficiary of CCA's performance over the past 6 years or so,

CAA like RFG suffers from the hangover of a past era - To judge them solely on history is like confusing a pimply faced teenager with braces to the newer variety gliding up the fashion runway. Chalk & cheese.

The modern day CAA IS a proven performer - boring yes, but a terrific stayer. It now enjoys these important differentials:

(1) Strong Balance Sheet with untapped credit potential should acquisitions come along. BTW, the last large acquisition in this space was Vulcan Steel (VSL) acquiring privately owned Ulrich Aluminium in July 2022. They paid 4.3x EBITDA which I believe values CAA in FY24 at $224m + $59m in cash = $283m. That's $16 a share v SP circa $9.40

I'd argue CAA is worth a higher multiple than Ulrich because of its diversity of sales & national market prominence - residential/commercial/trucks/boats + its governmental clearance on defence projects and green certifications. At a time of military importance, businesses like CAA, BSL & BIS take on national prominence.

(2) It's the largest performer in it's market segment wth some 28% which will grow further as they pursue their rollout of distribution centres. Sure resi housing is down in 2024, but the surge of the immigration influx is the next big wave to the beach and every new dwelling requires windows and other aluminium products like balustrading, even frames. CAA should enjoy a premium as the bigest and also the biggest with exces capacity of as high as 15%. I mention this because CAPEX requirements aren't all than onerous in the short to medium term.

(3) When the government orders new naval vessels out of Perth, CAA aluminium is front and centre. So too, with MaxiTrans trucks.So, to link CAA in with the ebb and flow of residntial housing isn't quite correct. Even so, there just has to be an avalanch of new housing - 550,000 new immigrants in 2023 - even if you squash them in at 4 per home (the Aussie average is 2.4 per dwelling) - there's 137,500 new homes not catered for - but desperately needed.

(4) As an ardent fan of Ned Kelly and with a pathological hatred of tax, CAA is my baby. I've enjoyed the rarity of 6 year of franked dividends whilst the comopany actually paid ZERO in tax. And now the FC's are spent, but we still have an extra 8 years (approx) of no tax to Canberra to fund their silliness.Frankly, I only call it silly because I canot get my nose in the trough, which I am willing to do so on some non -descript quango board dealing with the Boo-Boo fly infestation, or such.

But there's my point: NPBT = NPAT - & this applies to any acquisition they make along the way - Happy days!

(5) The company is conservatively well managed. Tony D has led well, but he does have a small soup stain on his tie when he recommended a buy out at $7 a share some years back. I think the then Board were shocked at the strength of the shareholder kickback led by Allan Grey, noted contrarian investors who value CAA well north of $10.

So, my only slight doubt about CAA is what they do with the cash. They are going to pay out 40% in unfranked divs and then buy back shares which they do routinely and somewhat aggressively. Good to see and I certainly aids the future Beta of CAA right up to about $12 a share (the value of NTAV), but with only 18m shares issued, will we buying our way to illiquidity.

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