Not much new in the AGM material today. Paul Proctor’s now properly in the CEO seat with a focus on tightening operations and lifting profitability -- which is pretty much the core of the investment thesis for me. Let's see if he can deliver..

They’re continuing the SE Asia push with low-cost prototypes in testing and building out data centre exposure, which is a really interesting space right now. The order book’s grown and capacity’s doubled, so keen to see how that plays out. The new Alu-Fin line’s in field testing, with mining validation trials pencilled in for 2H FY26. Also worth noting they picked up Caterpillar’s Supplier Excellence award again (second year running!).

On the distribution side, they’ve launched a GPS delivery tracking app, the e-catalogue revamp kicks off in 2H FY25, and the pricing analytics plus freight recovery work seem to be helping margins. They’ve wrapped up the NZ exit and are planning new branch openings in FY26.

Overall tone was upbeat.. strong order book, steady demand from data centres and remote power, and early Q1 FY26 trading apparently backing further profit growth.

[Held]

In a clunkily worded announcement, (AHL announcement.pdf) the company has stated that CEO Kevin Boyle is resigning "to pursue other opportunities." He only took the job at the start of 2024.

The new head appears to be an interim appointment, and from what I can tell, he’s an external hire.

The company listed with Don Cormack as CEO, who led the business from 2006 through to 2023. Darryl Abotomey held the role on an interim basis for about six months before Kevin Boyle took over.

Not great that they are having such trouble filling this role.

Still, shares are up quite a bit today, although this is a hyper illiquid stock and it only took about $16k of buying to push the price 13% higher. That move likely has more to do with the guidance, which was almost buried at the end of the announcement. As far as I can tell, it is the first time the company has provided anything specific. Namely, that "Adrad expects underlying FY25 earnings performance to be within a range of 95 to 100 percent of underlying FY24 earnings performance."

I assume they are referring to EBITDA, but they don’t actually say. If we go with that, it suggests FY25 EBITDA of $17.2 to $18.1 million.

Now, no one likes to see earnings fall, especially underlying earnings, but the reason the market seems to like it is because it suggests a decent recovery from the first half and a solid pick-up over the second half of FY24.

First-half FY25 EBITDA came in at $8.2 million, implying $9.0 to $9.9 million in the second half. That’s a decent lift from the first half, and compares well to $8.2 million in the second half of FY24, suggesting that the recent pricing actions, cost controls and contract renegotiations may be starting to have an effect. That’s encouraging given the margin squeeze they were facing earlier in the year.

I’m a little dismayed by the churn at the top, but it’s good to see things turning around from the first half. The thesis here remains the same -- a decent, albeit slow-growing, business that took a hit from outside factors that don’t reflect long-term earnings potential. These seem to be getting addressed, and the business is just plain cheap at the moment, trading on a forward EV/EBITDA of around 2.5 times based on the low end of guidance (excluding lease liabilities) or 5x if you include them -- which you probably should. More simply, the forward PE is probably around 9x.

Adrad doesn’t make the most glamorous products -- it’s in the business of radiators and heat exchange systems. But while it may not sound thrilling, cooling systems are absolutely critical infrastructure for everything from heavy machinery to data centres. Without effective thermal management, engines overheat, electronics fail, and operations grind to a halt. It's the kind of behind-the-scenes necessity that just quietly keeps the world moving.

The company operates through two main divisions. Its Heat Transfer Solutions arm designs and manufactures custom cooling systems for demanding applications like mining trucks, power generators, and rail locomotives. These are engineered products, often tailored to specific customers and environments, and they sit in high-barrier segments with strong recurring demand. Then there’s the Distribution business, which imports and sells a wide range of automotive aftermarket parts across Australia and New Zealand. This part of the business is more volume-driven and serves workshops, mechanics, and resellers.

Adrad’s roots go back to 1985, starting as a small radiator repair shop before gradually evolving into a full-scale manufacturer and distributor. It listed on the ASX in 2022 at $1.50 per share, with revenue at $134 million and NPAT at $12 million. Fast forward to the most recent full financial year (FY24), and revenue is up to $143 million. But profit has been cut in half, down to $6 million. The market hasn’t looked kindly on that... shares now trade around 60 cents.

But the devil (as always) is in the detail. The market is only looking at the drop in NPAT without really understanding what's behind it. And, to my mind, there's nothing structurally wrong here.

First, inflation has driven up input and labour costs, and that’s crimped margins. But more importantly, Adrad has been going through a bit of a transformation -- investing in new equipment, consolidating operations, upgrading systems, and generally dragging itself out of the “family-run business” era into something more efficient and scalable. That stuff takes time and money. It hurts margins in the short term, but it's the right kind of hurt if you're thinking long term.

The company just ate the cost increases initially, but it’s been re-pricing its contracts and passing costs on where it can. A key OEM contract was successfully renegotiated in January 2025, and that should begin to show up in the numbers from the second half of FY25 onward. Meanwhile, they’ve been consolidating manufacturing in Australia and ramping up production at their expanded Thailand facility, which should help a lot on the cost side too.

Moreover, capacity has been increased, and so long as volumes continue to grow, we should see a good deal of operating leverage emerge. Rising gross profits against largely stable fixed costs can do wonders for the bottom line!!

This is a solidly profitable business with a strong balance sheet. It even pays a very attractive dividend (7.5% grossed-up, thank you very much, which is generated off just a 40% payout ratio). Adrad sits on $7.9 million in net cash, which is about 16% of its total market cap.

On a trailing 12-month basis, the business is trading on an EV/EBITDA multiple of 2.5x (not a typo). Not terrible for a company with consistent and steadily growing revenues, positive cash flow, strong cash conversion, and loads of real assets.

As operating margins normalise, you don’t just get earnings growth, but also the potential for multiple expansion as well.

This setup is reminiscent of Stealth Group a few years ago: small, underfollowed, temporarily depressed margins masking solid fundamentals and a growth plan already in motion. Adrad isn’t flashy, but it’s building something real. If management executes and the market wakes up, the rerating could be meaningful.

The "smart" money can’t really touch it for now..it’s just too small and illiquid. But us mere "retail investors" can front-run them... assuming revenues do indeed continue to march higher and margins improve with scale.

That could take a few years, but at least there’s a tidy dividend to receive along the way.

These results from Adrad aren't great, but the issue seems to lie with factors (mostly) outside the companies control. I

High level numbers are:

Revenue: $77.9m (+6.0%)

Gross Profit: $40.1m (+3.3%)

Statutory NPAT: $2.8m (-7.7%)

Operating Cash Flow: $10.1m (-3.7%)

Cash Balance: $19.1m (+6.9%) -- (the balance sheet is in great shape btw)

The main culprits were higher material and employee costs, foreign exchange losses from a weaker Australian dollar, bad debt provisions for an overseas customer that may not pay, and rising insurance expenses due to expanded coverage. All of this squeezed margins, leading to a drop in earnings.

In terms of employee costs -- wage inflation was a factor, but they also boosted the sales team.

In resposne, Adrad is going to try its best to pass on higher costs to customers. It has raised prices in its distribution business and renegotiated a major contract in its industrial cooling segment. The company is also cutting freight costs, tightening foreign currency management, and shifting more manufacturing to Thailand, where costs are lower. These changes should help restore profitability.. but we'll see. The operating margin is only 10% or so, so things can move around a lot here

Like AVA, the EV/EBITDA ratio is rather undemanding -- less than 5x at present, although Adrad isnt growing like AVA is.

This is a boring business, but in general one with reasonable (if not exciting) prospects. A big part of the thesis for me was the potential for significant efficiency gains -- but these have not yet appeared. Stripping away things that are beyond their control, it's still hard to see much progress on that front.

Let's see what they can do in the current half to make this a leaner, more efficient operation. If there's no obvious progress, I'll have to concede the thesis busted.

The last FY results from Adrad weren't spectacular, but not unexpected and revealed some cause for improvement. Maybe that's far from a glowing endorsement, but when shares are on a single digit PE you dont need to expect a lot -- and it seems the market's reaction reflects this. Moreover, beyond any specific 12 month period, the business still remains sound with potential for decent growth. At least in my opinion.

So 1.2% growth in revenue is essentially flat, reflecting stable growth in the distribution segment (revenue up 4.3%) which is offset by project deferrals in the Heat Transfer Solutions (HTS) segment (a drop of 1.2% in revenue) -- which largely seem like a timing issue as they are expected to recover in FY25

The 10.9% drop in EBITDA isnt what you want to see, and while that partly reflects higher warranty claims, a big part is due to their product upgrade program -- about $1.5m worth. Excluding this, which you would hope is building the foundations for future growth, EBITDA would have been only 3.4% lower.

(Statutory NPAT was up, but largely due to favourable comps when you look at IPO related costs. Pro Forma NPAT was down 23%)

Also, the Thailand facility expansion required new equipment and a restructuring of the engineering and sales teams. These investments are expected to improve operational efficiencies, reduce costs of goods sold (COGS), and support future growth by increasing capacity to manufacture products locally rather than importing them​.

They also talked about an ERP upgrade (probably needed, but always makes you a bit nervous), as well as improved IT infrastructure.

Remember, the plan here is to transform a solid, but somewhat inefficient legacy business into a leaner, more optimised operation (something Darryl Abotomey has serious form in.)

We saw improved margin in distribution, inventory reduction thanks to improved processes, and range expansion. And customers continue to grow:

Speaking of inventory reduction, that drop in working capital helped boost operating cash flows from $7m to $14.7m (there was also a $2m tax benefit)

It was good to see the balance sheet improve -- cash increased 13.7% to $15.8m, while debt reduced 51.5% to $1.4m. The company paid out 40% of profit as a dividend, or 2.94cps. That gives a backwards yield of ~4% fully franked. Based on pro forma profit the PE is 9.3x (even after today's 9% pop).

I cant really see too much wrong with this picture. They will continue to modernise this old family business, build more capacity and capture more share. It's profitable, dividend paying and with a strong balance sheet. Yeah, capital orders will always be lumpy, but this is a proven business that has operated across many cycles, and I think low double-digit profit growth is absolutely in play for the next few years. (perhaps mid single digit revenue growth, boosted by efficiency gains -- and there's a good deal of low hanging fruit here)

I know it sounds a bit like a PE-type play, which is more about financial engineering rather than enhancing operational effectiveness and product-market fit, but based on what Darryl said when he spoke with us, this is much more about operating smarter and more efficiently, while still remaining focused on delivering value for customers.

Happily Held.

Radiators aren't a sexy product, but I must say Darryl did a good job of building some enthusiasm for me.

This is a profitable company with a well established presence and some real potential for genuine efficiency gains. And having followed Darryl since the Bapcor days (and Burson before that), I think he's definitely someone who can help drive those improvements.

Some notes from the meeting:

- Adrad has two main business segments: manufacturing and supplying radiators and other heat transfer solutions, and distributing automotive parts for the aftermarket.

- The company has a long history, with one arm celebrating 50 years and the other 40 years in business. They are the sole supplier of radiators for Kenworth trucks in Australia since 1974.

- Adrad manufactures bespoke cooling solutions for various applications including trucks, trains, data centers, power generation, and mining equipment. 

- The company is developing new aluminum radiator technology which is cheaper than traditional copper/brass. This requires extensive engineering and testing to get the specifications right for different operating conditions.

- Aftermarket parts are a significant portion of sales. Adrad aims to be the go-to supplier of cooling parts for the automotive aftermarket in Australia.

- The company is focused on improving inventory turns and return on invested capital. Current inventory levels are considered too high.

- Manufacturing is being shifted from Australia to a lower-cost facility in Thailand. This will improve margins while still allowing them to service the Australian market. Asian markets provide an additional growth opportunity.

- Electric vehicles are not seen as a major threat in the foreseeable future given the slow turnover of the car parc. Adrad is developing cooling solutions for EV and hydrogen applications.

- Some of their bespoke solutions have very long sales cycles of 5+ years from initial development to volume production. Securing the first major customer is key.

- Corporate costs are being tightly controlled as the company grows by keeping most staff in the business units rather than centralizing.

Shares seem decent value too. I'll post a rough valuation seperately.