My interest in Austin Engineering rests on a 2-part thesis:

1) That since the end of the mining boom they have been forced to 'shrink to greatness'. This means that to stay alive they have had to cut costs, sell non-core assets and focus on paying down debt. In doing so they have become a leaner and healthier organisation with a much lower cost base.

2) That spending on capital equipment in the mining sector has for the last few years been in a cyclical downturn that has troughed and is now on back on the upward trajectory.  Austin will see the benefits of this play out through a big jump in revenue over coming years.

In regards to the first part of the thesis, Austin has acheived admirable results and is operating profitably, although with a 'normalised' profit guidance of between $7.9m and $9.3m on revenue of approx. $220m (my guess for F19) they are a fairly marginal business. The fact that they report 'normalised' profit means that in reality they are probably even more marginal than they appear.

The second part of the thesis is simply not playing out at the moment. Investment in mining capital equipment is increasing, Austin shows this in their own presentation materials; however this is not converting into increased revenue. Last week the company revised their 'normalised' EBITDA guidance for F19 down by around $4 million. The reasons for the lower EBITDA included deferral of capital projects by clients for operational and budgetary reasons... this directly contradicts my thesis.

With capital expenditure on equipment on the rise the benefits should be flowing through to Austin's top line...but they are not. My thesis is looking shaky and I am unhappy with the level of management ownership (I don't feel management are well aligned with shareholders). I am closing my position in Austin.

I must have missed this: the Managing Director, Peter Forsyth, purchased a further 300,00 shares on market on 7 December 2019. He paid $0.22 per share and now owns 500,000 shares. At current share price his holding is worth around ~$100k.

This level of holding is still not what I would call a vote of confidence in the business. Checking the last annual report, Peter Forsyth is paid $500k per annum and has short term incentives (STIs) equivalent to 60% of his pay. Where is the buy in from senior management? Doesn't seem to be a huge amount of incentive to see shareholder returns improve.

In December 2018 I was seriously worried about the abrupt resignation of the CFO. It was a big red flag, and it is hard to understand why a person integral to the turnaround thesis would choose to leave the business on the cusp of success. I still believe this is a red flag and raises questions, however since this time ANG has continued to reduce debt significantly.

Over the last week they have announced the sale of around 13 cranes in South America and have also announced the sale and leaseback of property in Australia. The continued austerity steps don't don't sit comfortably with the theme of a CFO leaving the business due to financial problems. These austerity measures seem to be a continuation of the positive steps that form a part of the turnaround thesis.

The company is reducing debt successfully and I look forward to seeing the other side of the equation (revenue/sales/costs) when the half-yearly is released.

In late November Thorney advised they had purchased another lazy 17.7 million shares taking their position to 24.23%.

IFL are also an active buyer and over 2018 have purchased 25.5 million shares taking their position from 10.22% at the start of the year to 14.63% today.

While I am very bullish on the company, I am concerned with the low level of ownership from within the Management team. A quick summary of shareholdings within the core is as follows:

- Managing Direct, Peter Forsyth = 200,000 shares

- Jim Walker, Chairman = 166,000 shares

- Sybrandt Van Dyk, non-exec Director = 128,500 shares

- Chris Indermaur, non-exec Director = 0 shares

If you were to make a decision purely based on skin-in-the-game you wouldn't be buying!

The 10-year price chart for Austin is a great picture of how a company can fall from grace. From its peak of just under $4.50 in 2013 the share price saw a massive slide, losing around 98% of its value and for some extended time trading under $0.10.

As with all the great boom-to-bust stories the management team thought the boom times would never end. Towards the end of 2013 Austin found itself with way too much debt to support a pretty rapid change in the mining environment. Over the last couple of years the company recapitalised, sold a number of assets, closed some under performing operations and significantly reduced the debt burden. It is a surprise they were able to achieve this.

At the recent AGM it was highlighted that top mining companies are forecasting for increased capital spend over F19 and EBITDA guidance was confirmed. It was also confirmed that ~66% of revenue for F19 was now locked in and the tender book and pipeline of opportunities was looking pretty strong.

In a world where reporting of profit and earnings can sometimes hide a rotten core, the Chairman highlighted that FY18 saw the company report net positive cash flow of $1.7 million. Although this is small, it is a great change from last years $8.8 million outflow. Reported working capital has improved by $8.3 million.

The green shoots are well and truly there now and I think there is potential for an amazing turn around story. I would like to think that the management team now have the right balance of "once burnt, twice shy" to take advantage of the improving capital environment in the mining industry without popping too many champagne corks!