12-Apr-2019:  As part of the ASX's free Equity Research Reports service, which I've mentioned here before, they send out an email every Friday to everybody who has signed on for this free service, and this week's broker reports included one from State One Stockbroking on FBR, which can be viewed here.

It is titled, "FBR Limited (ASX:FBR):  Value but at increased business risk"

It starts like this:

In December 2018, FBR discontinued its (July 2017) MOU with global construction and mining equipment giant Caterpillar Inc. (NYSE:CAT); the MOU looked to create a framework for collaboration regarding the development, manufacture, sales and servicing of FBR’s robotic bricklaying technology, and how best to offer this technology to CAT’s construction customers. We suggest that abandoning this commercialisation route - technology royalties from a tier-1 global heavy equipment manufacturer – in favour of a Wall as a Service(TM) - or WaaS(TM) (TM=Trade Mark) business model, has not, as yet, fully gained traction with the marketplace. At current price levels of 8c, FBR’s share price is 52% below its December high of 16.5c.

The WaaS(TM) business model involves FBR effectively becoming a subcontractor to builders i.e., generating revenue from laying bricks. This contrasts with the original commercial model of generating revenue from CAT selling Hadrian X units to building contractors and FBR receiving a royalty on the sale of each unit. FBR maintains that the WaaS(TM) business model potentially makes a stronger financial return than machine sales. However, it also, increases the business and financial risk for FBR.

FBR will now have to finance manufacturing the Hadrian X units, fund the working capital to maintain the machines, train and employ operators, and most critically of all, source building work and learn how to operate in the domestic (and potentially overseas) building and construction industry. This, we imagine, will be a steep learning curve for what is effectively an IT/engineering company.

Risked SOTP target price: A$0.17 (A$0.50 previously)

We have significantly revised down our forecast revenue and profit profiles on the back of FBR’s new operator-driven versus royalty-driven business model. This is essentially due to (1) forecast capex constraints on ramping-up the manufacture of Hadrian X units, (2) lags in “on-boarding” building and construction contracts and, (3) limiting work initially to Australia. As a result, our un-risked NPV10 for the Hadrian X Project has fallen considerably to A$495m (28c per fully diluted share) from A$1,043m (66c per diluted share). In addition, we have increased our risk discount to 50% (30% previously) on the increased forecast risk attached to the new commercial model. As a result, our target price has fallen to 17cps (50cps previously). We maintain a Speculative Buy (Higher Risk) recommendation.

Risks to our earnings profile and target price include, but are not limited to: sourcing building contracts, operational performance of Hadrian X, operating costs and capex, dependence upon key personnel, competition from other technologies.

Click on the link above for the rest of the report.