Morgan BellAdvanced Engine Fights for the Light
December 11th 2006 11:45
Advanced Engine Components makes wonderful gas engines for buses and trucks and sells them in Australia and overseas. Yet, in six years of listing, it never knew a profit. Is this a contrarian opportunity? Stay with me for more.
The news today, 11 December 2006, is that ““common sense in action” is one way to describe the activities of Advanced Engine Components. The Perth-based company has world-class technology that allows buses and trucks – and potentially cars – to run on natural gas.”
“The technology is proven. AEC has 650 buses running in France and Australia – but great ideas and great technology don’t guarantee success.”
“The company has been struggling. It listed in February 2000, but the original shareholder went into liquidation. Losses in 2001-02 blew out to $6.4 million, but fell to $1.2 million in 2005-06 after more than three years of restructuring. The shares closed at 15c on Friday, having reached a year low of 8c.”
““This year, however, we will have a maiden profit,” said managing director Tony Middleton, a former chairman and chief executive of the Perth Public Transit Authority who has been with the company for nine years.”
“The gas specialists have now won a stream of regular orders from China. AEC has formed partnerships with three of China’s five biggest producers of bus and truck engines, giving them “preferred-supplier” status to the companies that produce more than half the Chinese output of heavy engines.”
This news was published in the online version of The Age under the title “Perth engine maker now cooking with gas” and was written by Philip Hopkins. Click here to open that page.
A quick glance at Advanced Engine Components (ASX: ACE) reveals that since its listing in the stock exchange in 2000 it has been running a constat loss, being the current one of $1.4 million.
Interestingly, ACE has cash assets of $1.088 million, a debt of $4.9 million, revenue of $2.6 million while its equity has been completely wiped off. Yet, it has a book full of orders.
These figures are based on data available at: money.ninemsn.com.au.
What’s wrong with Advanced Engine?
I only envisage two possibilities: poor fundamentals or poor management.
ACE has a very interesting product in its hands: a patented Natural Gas Vehicle System (NGVS) which it has been exploring with success in Australia and exporting to countries such as France and China.
Management is headed by Antony Middleton MD which, as mentioned above, has been with the company for nine years. What has been the direction management has taken so far? Has it been imaginative? Can any alternative directions be found and people to refresh the board of directors?
On the business, is it naturally tending to be cash flow positive? Has the product potential been exploited to its fullness? What, truly, prevents ACE from being profitable and cash flow positive?
I don’t know the answers to these questions. But, if one would want to invest in this permanently loss making business with a great idea, one would have to find out clearly.
Buying a company while in loss is great bargaining – 18 cents now having been as high as 40 cents in 2000 – but if you are going to be greedy when others are fearful, you are also going to want to be absolutely sure.
One thing I know for sure: a continuously loss-making business is bad for shareholders, but people who get paid a salary or a commission still make the daily dollar.
End
The news today, 11 December 2006, is that ““common sense in action” is one way to describe the activities of Advanced Engine Components. The Perth-based company has world-class technology that allows buses and trucks – and potentially cars – to run on natural gas.”
“The technology is proven. AEC has 650 buses running in France and Australia – but great ideas and great technology don’t guarantee success.”
“The company has been struggling. It listed in February 2000, but the original shareholder went into liquidation. Losses in 2001-02 blew out to $6.4 million, but fell to $1.2 million in 2005-06 after more than three years of restructuring. The shares closed at 15c on Friday, having reached a year low of 8c.”
““This year, however, we will have a maiden profit,” said managing director Tony Middleton, a former chairman and chief executive of the Perth Public Transit Authority who has been with the company for nine years.”
“The gas specialists have now won a stream of regular orders from China. AEC has formed partnerships with three of China’s five biggest producers of bus and truck engines, giving them “preferred-supplier” status to the companies that produce more than half the Chinese output of heavy engines.”
This news was published in the online version of The Age under the title “Perth engine maker now cooking with gas” and was written by Philip Hopkins. Click here to open that page.
A quick glance at Advanced Engine Components (ASX: ACE) reveals that since its listing in the stock exchange in 2000 it has been running a constat loss, being the current one of $1.4 million.
Interestingly, ACE has cash assets of $1.088 million, a debt of $4.9 million, revenue of $2.6 million while its equity has been completely wiped off. Yet, it has a book full of orders.
These figures are based on data available at: money.ninemsn.com.au.
What’s wrong with Advanced Engine?
I only envisage two possibilities: poor fundamentals or poor management.
ACE has a very interesting product in its hands: a patented Natural Gas Vehicle System (NGVS) which it has been exploring with success in Australia and exporting to countries such as France and China.
Management is headed by Antony Middleton MD which, as mentioned above, has been with the company for nine years. What has been the direction management has taken so far? Has it been imaginative? Can any alternative directions be found and people to refresh the board of directors?
On the business, is it naturally tending to be cash flow positive? Has the product potential been exploited to its fullness? What, truly, prevents ACE from being profitable and cash flow positive?
I don’t know the answers to these questions. But, if one would want to invest in this permanently loss making business with a great idea, one would have to find out clearly.
Buying a company while in loss is great bargaining – 18 cents now having been as high as 40 cents in 2000 – but if you are going to be greedy when others are fearful, you are also going to want to be absolutely sure.
One thing I know for sure: a continuously loss-making business is bad for shareholders, but people who get paid a salary or a commission still make the daily dollar.
End
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