Good progress at ADAM's largest investment
ADAM holds an 85% controlling shareholding in Future Metal Holdings (FMH) As at 30 September 2019, that stake represents 45.2% of its portfolio. The business consists of the largest magnesium dolomite quarry in Linfen City, Shanxi Province, China and ADAM believes that FMH is in a strong position to capture the growth of the substantial magnesium market in China.Progress vs operational and strategic targets at the quarry is key to understanding FMH’s potential and any assessment of ADAM’s intrinsic value. That is particularly true short term, as ADAM continues to scale up its portfolio of income producing investments.
Over the last 12 months, ADAM has directed its investment in FMH to support plans to restart quarrying production and progressively, create a self-sustaining, profitable and saleable business. According to the latest update, the key initiatives are on target.
Independently analysed production and sales estimates show potential for FMH to generate c US$4.5m pa revenues and at c 50% gross/30% operating margins, post-tax annual earnings of c US$1.0m. Delivering on these estimates would underpin a significant valuation for FMH and, in turn, ADAM.
The next phases will be confirmation of (a) production scalability and (b) firm, large volume orders that provide revenue visibility at prices which underpin the financial model. Further updates should continue to narrow the substantial disparity between ADAM’s £36m market cap and our proforma NAV calculation of £76m.
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