Advanced Braking Technology (ABV.AX)
Interesting microcap at an inflection point
Disclosure: Very illiquid - $13m market cap
After a very impressive first 3 quarts of FY2023, Advanced Braking Technology has caught my eye with substantial increases in both revenue and profit, with regulatory and industry tailwinds I think ABT is a very interesting company.
About The Business
Advanced Braking Technology (ABT) is an industry leader in yes, braking technology:
“Advanced Braking Technology Ltd (ABT) is a brake specialist that manufactures and distributes its award-winning patented Sealed Integrated Braking System worldwide. From its head office in Perth, Western Australia, ABT is continuing to develop its brakes for sectors that have a strong requirement for safety and environmental responsibility. These include mining, defence, civil, agriculture and recreational 4WD enthusiasts.”
Through the first 3 quarters of FY23 ABT has been able to grow revenue by 30% from $8.05m to $10.44m with profit growth of 181% to $1.275m, trading at below 7x Q3 profits annualised.
What Problem Does it Solve?
ABT's main business comes from its failsafe brake for lightweight vehicles typically with mine and military applications.
Lightweight trucks like the Toyota Landcruiser don’t come with sealed braking and fail-safe brakes but are mandated in certain industrial industries. ABT’s patented hydraulic press brakes solve many issues for their customers including:
Safety: When dealing with harsh terrain and unsafe environments like mines and military zones you want to make sure your brakes work and there’s some backup. ABT brakes are automatically activated when a door is opened, a seat belt is unbuckled, or the engine is stopped or can be activated manually by an emergency button independent of the vehicle's existing brakes.
Down Time: ABT brakes are fully sealed unlike brakes found in typical utes, for safety reasons miners typically have to clean the car brakes every few weeks to ensure the integrity of the breaks, however, the relentlessness of cleaning requires downtime and extra resources, not the end of the world, but ABT sealed brakes don’t require ongoing maintenance or cleaning for months, and save time and money for users.
Environmental: According to ABT their brakes reduce brake dust emissions on utes which typically accounts for around 25% of the total emissions of a vehicle.
Most Larger utes/vehicles already come with failsafe brakes which has resulted in ABT identifying the opportunity within the light vehicle space. I haven’t been able to find any information on the cost and lifespan of the brakes, but I would imagine they would be a negligible cost for miners with a long lifespan. ABT customers consist of many blue chip customers seen in the figure below, it is definitely something to note that they are considered the industry leaders with many blue chip clients and are still very small, with very small absolute growth.
Joint Venture with Glencore
A very interesting development of the last 12 months is their JV with Glencore. ABT is beginning to focus on larger heavy-duty vehicles, most come with built-in failsafe brakes but not all. The Volvo construction trucks do not, and Glencore has a large fleet of them and as a result reached out to ABT to develop some. Glencore has funded around 85% of the cost related to developing the product ($2.8m), ABT has said that they expect the development to be completed by CY23, in which Glencore will have the choice to implement them into their vehicles at “preferential pricing” if the product is satisfactory. ABT will then be able to commercialise the product worldwide.
Financials
Very messy Chart, but it highlights the strong relative growth ABT has seen over the last 6 years and operating leverage within the business. From 2018- 2022 (not inclusive of 2023 results) ABT’s revenue has grown at a CAGR of 12.29% while expenses have grown at just under 4%, with gross profit margins widening from 38% to 50% in 2023.
It has to be noted that while ABT's relative growth is quite impressive they still only have $11m in revenue (FY2022) and the absolute growth has been slow with only a ~$6m improvement in revenue in the last 5 years, which probably highlights the fact this is a very niche market and they are reasonably mature in the Australian market. The bulk of the revenue growth has come from the overseas market growing at a CAGR of 22% from 2018-2022, however, has grown at 36% since 2019, while the Australian operations have grown at a CAGR of 7.5% from 2017-2022, and were down (-2.4%) from 2021-2022.
Definitely worth an add to your Watch list, it’s very likely ABT is trading at below 10x 2023 earnings given the success of the first 3 quarters. With the strong current success of mining, regulatory and ESG requirements of heavy industry operators ABT is definitely in a strong position to capitalise on the tailwinds, and with the lack of liquidity in microcaps lately this might be a great buying opportunity looking back in a couple of years. I am keen to see the full-year results and the development of the JV with Glencore and the success of their product.
Link to ABT’s Coffee Microcap Presentation: