Q: What are your current thoughts of Atlas Engineered Products? They seem to be trying to add small legacy type businesses as their method of growth. Do you think they have the management that can pull this off? Are their financials currently solid enough that debt is not a problem at present interest rates? Any other thots positive or negative about AEP? I’m quite positive on this group and wanting to buy more. Should I be tempering my enthusiasm?
5i Research Answer:
AEP operates as a manufacturer of engineered wood products and is now trading at 11.9x times' Forward P/E. In the last few years, growth was healthy driven through a combination of organic growth and acquisitions (revenue growth was around 15% on average from FY 2017 - FY 2022), however, revenue was down this year due to a more challenging environment. The balance sheet is okay, net debt is around $24M and net debt/EBITDA is currently around 1.7x, the debt increase was due to the large acquisition this year. The company has repurchased shares here and there, but it was largely offset by share issuance. Overall, an interesting micro-cap name, but risks around size and liquidity do apply here.