Niche stocks flying the flag for Australian manufacturing

Our trade tensions with China have fuelled the coronavirus-spurred debate about our reliance on offshore supply chains for goods both to and from our shores.

Apart from the reluctance of the Chinese to take our barley – and thank goodness they’re not snubbing our iron ore – the other topic of post virus introspection is the demise of local manufacturing of many essential products.

It’s too late for car making or oil refining or pharmaceuticals. But we can still attach the made in Australia – or, in some cases, designed in Australia – label to key components.

Many of them are ASX listed, but low key. Some of these stocks are discussed below:

Marine components

Perth-based precision engineer VEEM (ASX: VEE) falls into the “niche” category with its two core product lines: marine propellers and gyroscopic stabilisers.

VEEM is the only local propeller maker, while its gyros – and we’re not talking souvlakis – are a globally recognised alternative to the fin-based stabilisers that are based on yesterday’s technology.

“There is great capability in Australia that can be nurtured and developed,” VEEM chief Mark Miocevich explained. “It’s not as strong now as it was, but it’s still there.”

But he says it’s clear our “sovereign capability” is not where it should be – especially in the military sphere: “we don’t have the volume and the background in product to do it as cheaply as overseas.”

Nonetheless, VEEM derives about half of its revenue from defence jobs, notably supplying componentry such as valves and maintenance to the Australian Submarine Corporation’s Collins Class subs project.

The work is expected to last for 30 years and beyond.

VEEM’s gyroscopic stabilisers have the advantage of being contained within the hull. The current fin-based methods are effective to a degree, but unwieldy for tasks such as mooring beside an oil rig or rescuing people from small dinghies.

The fins also create drag at speeds above 19 knots. VEEM’s gyros are suitable for small to medium vessels, between 70 tonnes and 3,000t.

Outside of defence, luxury cruise ships present a lucrative market because the vessels are just the right size to benefit the most.

The sector is booming, with 274 currently being built globally. As Mr Miocevich tactfully noted, better stabilisers are needed because the cashed-up owners are not necessary natural seafarers.

Yep – they’re prone to chundering over the side of their floating palaces.

While the stabilisers aren’t relevant for cruise ships, Europe’s Damen Shipyard has ordered a 20t unit for a cruise ship supply vessel.

VEEM listed in October 2016, raising $5 million at $0.50 apiece. The company was founded in 1968 by Mr Miocevich’s father and Croatian immigrant Voyka, who died in 1976. Unusually for the times, Mr Miocevich’s mother Elizabeth Elise ran the business for seven years.

In case you haven’t guessed, VEEM stands for Voyka Elizabeth Elise Miocevich.

The family still accounts for 61% of the register and Mr Miocevich’s brother Brad chairs the company. “Family companies succeed for longer if they are subject to the discipline of being a public company,” Mr Miocevich claims.

VEEM turned over $20.9 million in the December half and posted a $900,000 profit, up 34%.

But, as could be expected the business has been affected by the COVID-19 related closure of European shipyards and its workforce is on JobKeeper.

3D printing

The 3D printing innovator AML3D’s (ASX: AL3) facilities in the Adelaide suburb of Edinburgh Parks are just down the road from the Osborne Naval Shipyard, home to not just the aforementioned submarine project but the $35 billion Hunter class frigate program.

Given Edinburgh Park also hosts defence contractors such as BAE Systems, Airbus Group Australia and Lockheed Martin, the $21 million AML3D could be seen as the cheapest house in the poshest ‘hood.

While it’s early days, AML3D is eyeing defence and marine applications for its additive metal layering technology based on proprietary software.

Chief executive officer and 30% shareholder Andy Sales explains that precision equipment traditionally has been whittled from a block of cast metal typically ordered from casting shops in Italy or Germany.

Like reverse peeling an onion, additive layering involves building the item from scratch.

Apart from added precision, the company’s feedstock is obtained locally, this avoids delays and supply chain shocks … such as coronavirus.

Another way of looking at the technology is a high-tech iteration of the century-old art of welding.

AML3D has built and sold its first “Panama chock”, which old salts would know as the heavy metal blocks with a hole in the middle.

Ropes go through the hole to moor a ship, so they have to be highly durable while as lightweight as possible.

The pantheon of ASX-listed 3D stocks includes the trailblazing Aurora Labs (ASX: A3D), Amaero International (ASX: 3DA) and Titomic (ASX: TTT). The latter’s shares zoomed to as high of $3 in May 2018 after listing at $0.20 apiece in September 2017.

The 3D plays are different in their own ways. But Mr Sales says AML3D distinguishes itself because it sought and obtained accreditation for its process before listing.

“Some of our peers have spent millions of dollars on an idea; they are still in research and development.”

AML3D essentially remains pre-revenue, having turned over $87,000 in the first (December) half.

Mr Sales reports a good level of inquiries, including from defence contractors.

“But it does take time,” he says. “They want to know your business and how the process works.”

Racing car components

There were no doubt sighs of relief around PWR Holdings’ (ASX: PWH) Gold Coast HQ when the crowdless Austrian Grand Prix revved up on Sunday, marking the start of the Formula One season that stalled with Melbourne’s aborted race in March.

PWR makes sophisticated cooling systems and radiators for racing cars, including nine of the 10 Formula One teams.

In 2015, the company acquired C&R Racing Indianapolis and an entree into the US NASCAR, V8 Supercar, Indy Car and stock racing markets.

(The NASCAR season restarted on May 17).

Not surprisingly, demand has slowed although PWR’s Gold Coast factory is still working four days a week.

While the company has beefed up the original equipment manufacturing and emerging technology parts of its business, motorsports still account for about half of its revenue.

Speaking, of which, PWR turned over $29.8 million for a handy $3.5 million profit in the December half, but the June half performance remains a stab in the dark.

PWR shares have held up well during the coronavirus rout and are only 10% off their early January 2020 peak of $5.04.

With a meaty $450 million market valuation, PWR has proven that even if the local car makers have run off the track, automotive innovation races on.