In a quick review of AHL's AGM material and speech, picked up 3 subtle points to note to manage expectations:

• Strong order book for data centre power generation - significantly higher than FY24
• FY24 deferred projects commenced - this was as guided previously, but good to confirm
• Full year FY25 revenue and earnings weighted to 2HFY2025, presumably from the revenue of deferred projects and data centre projects hitting later in the year given the longish gestation period for these sorts of projects. Implies 1HFY2025 growth could be flattish

Have been trying to top up around $0.75 these past few months but there has been very little decent volume of above 5,000 units available to make a purchase worthwhile. Patience is absolutely needed!

Discl: Held IRL and in SM

My notes on AHL's FY24 results. As I was reviewing the Annual Report, the following 2 longer term growth areas for HTS crystallised, particularly the commentary around Caterpillar recognition, both of which now forms the core of my refined AHL thesis. Am trying to get more information on AHL's relationship with Caterpillar to work out how far it could potentially go with AluFin.

Discl: Held IRL and in SM

KEY LONGER-TERM GROWTH AREAS FOR AHL

Cooling systems for Data Centres - demand for AHL’s cooling solutions will grow as demand for Data Centres grow globally driven by the AI boom. Thailand manufacturing facility is well place to support growth in this area in the Asian region

Battery powered above ground mining equipment is set up for significant growth once the cooling technology matures.

• Supplier recognition by Caterpillar is a really good positive sign
• Cat appears to be targeting 2028 for the production rollout of Cat battery-operated trucks - the mining industry is under increasing pressure to transition to green technology and there is a whole existing fleet of mining equipment which will require upgrading to battery-operated operations once the battery-powered technology matures
• An efficient and cost effective cooling system is an integral part of the green equipment which is where AluFin is targeted at

FINANCIALS

Weaker 2HFY24 and weaker FY24 overall, but no surprises as guidance was provided in May 2024

FY24 earnings issues in HTS appear to be transitory, not permanent due to customer project slippage which is anticipated to be restarted in FY25 - expect to see some recovery in HTS in FY25

Revenue of $142.8m came above the midpoint of revenue guidance of $140m to $144m

EBITDA Proforma came in at $18.1m, at the lower end of the $18m-$19m guidance - HTS One off $1.5m costs were incurred, impacting EBITDA, also previously flagged

BALANCE SHEET

Strong cash generation from operations continues

Inventory reduced by $7m - focus in this area bearing fruit

Capex investment makes sense in terms of Thai plant expansion

OPERATIONAL UPDATES

Senior Leadership Team is now fully in place with the onboarding of the new CEO Kevin Boyle in Apr 2024

Internal re-organisation completed with key segments being (1) Heat Transfer Solutions (2) Distribution and (3) Group Support

This is the ongoing maturing of the AHL organisation that Daryl Abotomey discussed during the SM meeting.

HEAT TRANSFER SOLUTIONS

Positive Developments:

• Expanded the scope of our after sales service offering by providing more services for our customers’ equipment along its path from manufacturing and commissioning and throughout its serviceable life
• Off-highway segment continued its positive trajectory
• Continue to pursue operational efficiencies as we finalised construction of the factory extension and new offices, factory floor re-lay and new equipment commissioning at our Thailand plant.
• Continued progress on AluFin product development with a number of global mining players on multiple fronts- field testing in underground mining equipment, developing a prototype for above ground mining dump trucks, field testing units in on road transport and service testing of an auxiliary cooler module for battery electric powered above ground mining equipment - 
• Awarded the Supplier Excellence Recognition award by Caterpillar; an award which recognises top-performing suppliers who have met or exceeded rigorous requirements and achieved world-class certification levels under Caterpillar’s Supplier Excellence Recognition program

Negatives offsetting the positives:

• Continued negative volume pressure in our OEM mining vehicle market in Asia. 
• Conditions in the Australian domestic mining and energy sector saw a number of projects with their associated demand for cooling applications deferred. 
• We expect most projects to progress in FY25 and we retain a positive outlook for this sector

DISTRIBUTION

Inventory reduction was a big management focus in FY24

Another year of top line revenue growth from a greater volume of sales across the range of categories we supply to the industrial and automotive aftermarkets. 

Continued to emphasise our primary focus on cooling applications in industrial and vehicular sectors but also added to our product range with the introduction of fuel pumps and harmonic balancers amongst others. 

More actively engaged in dynamic pricing to be more competitive across our product ranges and drive continued market share growth.

GROWTH OPPORTUNITIES

THESIS REVIEW

No change in thesis - business is steadily improving and growing, albeit with FY24 headwinds in HTS - these appear to be transitory

Positioning early for the longer term growth in HTS from Data Centre growth and AluFin opportunities in mining, especially when the global mining equipment players complete the current development phase of green technology equipment and massive fleet replacements from combustion to green technology occurs

Happy with 2.8% position size. Will top up position to 3.5% on any weakness below 75c, which is an attractive entry point given AHL’s all-time low price of ~64.5c

This is a note to myself, sharing in case it resonates with anyone else.

I was reading the story of the AirTrunk $2.4b deal which has been all over the news, particularly the explosive demand on Data Centres from "AI, and how AirTrunk was setting up Data Centres all over Asia and Australia.

It help crystallise for me, the AHL longer-term thesis around "AI". AHL's industrial cooling systems business has seen good demand growth from data centres as AHL's systems are a key requirement for good data centre design. That AHL has moved a chunk of its manufacturing facilities to Thailand positions it well for Asia-based data centre opportunities.

Cheap sale might be on from Monday onwards, will be a good time to add ...

Discl: Held IRL and in SM

From the AFR:

Street Talk understands veteran Bapcor chief executive Darryl Abotomey was canvassed by the Mike Murphy-led Bain Capital about being involved in the buy-out. Bapcor disclosed it had received a $1.83 billion non-binding, indicative offer from Bain via scheme of arrangement on Tuesday, following a report by Street Talk. Abotomey did not respond to requests for comment.

Sources said Bain Capital was among a number of private equity firms that had tested the appetite of the former Bapcor boss. Of some note, it is understood shareholder John Wylie, who is leveraging a 6.45 per cent ownership to call for a board shake-up, had also reached out to Abotomey about his interest in taking the chairman’s role under a new owner.

The proposed Bain takeover offer of BAP could impact AHL a bit. This plan to involve Daryl in BAP 2.0 sounds like it has been brewing for a while and makes perfect sense. The timing is very interesting vis-a-vis AHL (1) the BAP downgrade (2) Kevin coming onboard AHL (3) Daryl handing over and being totally non-commital on his involvement in AHL post Kevin when SM interviewed him a few months back.

I can't see Daryl just stumping out capital to partake in the buyout and do nothing else ...

Given that BAP would be a competitor of sorts to AHL's parts distribution, not sure how Daryl can still be involved in AHL as a non-Exec director, if he is actually going to be involved in BAP 2.0.

Doesn't change my thesis for AHL, but I would probably temper my enthusiasm a bit, unless Kevin turns out to be a dud ...

Discl: Hold AHL IRL and in SM, Do Not Own BAP

AHL has weakend in the past 2 weeks on no news. The thin volume makes it very hard to buy a meaningful number of units to make the brokerage worthwhile. Took the only super-short window available today to top up at 0.93 as there was some decent volume on offer as well as the price being smack bang at the 38.2% rectracement level - both rare occurences!

If it weakens further, the next entry point that I am looking at is ~0.885, which is the 50% retracement and 200 Daily Moving Average.

Discl: Held IRL and in SM.

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