Confidence up at Bisalloy after tough times

Bisalloy in many respects is an Australian manufacturing success story, but it is one which is yet to set the investment world alight. This could all change in the next year as it recovers from a tough fiscal 2013.

It produces a high-strength lightweight steel it brands “Bisplate” from its mill in Unanderra, south of Wollongong in NSW. It also has a joint venture with Chinese steel giant Shandong Steel to produce its product out of China.

Bisplate is in demand from miners because it is used in large dump trucks, drag-line buckets and cranes. The group had a spectacular year in fiscal 2012 delivering revenues up 33 per cent to $104 million and a net profit which almost trebled to $6.3 million.

In the wake of that result, and the euphoria surrounding its Chinese joint venture, its stock raced from a low of 50¢ in mid-2011 to $1.70 in March 2012.

Now Bisalloy’s price is hovering around 87¢. Despite a promising start, fiscal 2013 proved to be difficult as commodity prices fell and miners put the brakes on expansion. But it is the maintenance capital expenditure, which is required year in year out, that will be Bisalloy’s saviour, according to managing director Robert Terpening.

“The volume Fortescue, BHP and Rio Tinto have been digging out of the ground has to translate to wear on their equipment,” he said. “It’s a matter of when, not if, they need Bisplate.”

It can’t come soon enough for Bisalloy shareholders. In the year to June 30, revenues were down 20 per cent to $80.6 million, producing a profit of $3.8 million, which was down 44 per cent.

Another signal Bisalloy’s shareholders will be looking for is sales out China. So far, the high expectations from its joint venture with the giant Chinese steelmaker Jinan Iron and Steel to sell its high-strength Bisplate steel into that market have not been met.

Importantly, the venture has not cost Bisalloy much money. The company invested $1 million into the joint venture and it has almost recovered all of that in dividends in just over two and a half years.

Terpening believes that Bisalloy’s intellectual property over Bisplate is protected because only Bisalloy knows how to fix problems with the production, and envisages that the joint venture will start producing the big sales that investors have been hoping for.

“Until now we have been sending technical experts over as required. We’re now more optimistic so are putting more sales people on our books. Our profits have been hit hard by domestic market’s downturn, but we’re confident that we can build up our profits in China to redress this,” he said.

A sign of confidence is that Bisalloy has reintroduced paying dividends, having reduced its debt from a peak of $40 million to less than $10 million. The stock is trading on a PE of just under 10 times and if it keeps paying dividends it has a yield of over 9 per cent.

Bisalloy’s annual general meeting is not until late November, where it will resolve how its sales are tracking. It will be a crucial point for a company at the proverbial crossroads.

Richard Hemming edits the newsletter Under the Radar Report: Small Caps. Click here to access the fortnightly newsletter. Visit here for more Under the Radar articles.

The original release of this article first appeared on the website of Hangzhou Night Net.

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