The idea
Capral is an Australian small cap which operates exclusively in the end-product aluminium sector.
Capral currently trades at a market cap of $160m with $68m cash in the bank, valuing the business at ~$92m.
More optimistically, one could treat the deferred tax asset of $27m as a cash asset (effectively it means they’re exempt from their next $27m in tax), valuing the business even cheaper at $65m.
Capral did free cash flow of $26.5m and net profit of $32.4m in 2024, with outlook to do similar numbers in 2025.
Against an enterprise value of $65m, Capral is trading at just 2x profit and 2.5x free cash flow with predictable cash flows moving forward in a mature industry.
Capral is aggressively returning capital to shareholders with 364k shares repurchased in 2023, 635k in 2024, and up to 1.6m planned (10% of float) for 2025.
If the dividend stays constant that would equal 40cps in dividends and 95cps in buybacks, returning over $6.8m in dividends and $16m in buybacks to shareholders in FY25. All of this can easily be funded with expected cash flows meaning they should retain a strong cash balance in the bank giving possibilities for a special dividend or acquisitions.
While it’s obviously cheap here are some back of the napkin figures to put it into numbers:
Catalyst for returns
Capral is growing in all the right ways, with their cash balance and equity both more than doubling since 2020.
Trading at just 3x EV, I expect the market to re-rate Capral after 3 years of aggressive buybacks which hasn’t seemed to move the market much.
A takeover is also possible, with Capral receiving a $7/share bid in 2021 which was quickly rejected by the board. As the Australian economy has stabilized post-Covid, an improved offer is possible or even likely with the company’s low valuation. Net of cash assets the company trades for $65m, meaning even at a premium, the business alone could be purchased for under $100m while cashflowing $25-30m per year. Those numbers are ideal for a private suitor and Australia’s takeover scene is usually active.
The company is still growing market share by acquiring small businesses throughout Australia, with two new trade centres acquired in FY24 for $6.8m. These do not require leverage and are easily funded through the existing $68m cash balance but contribute immediately to the bottom line.
Even without a takeover bid or market re-rate, Capral still offers a strong direct return through dividends and buybacks that should be expected to be in the low-mid teens in the short-medium term.
Not only does it trade at an unreasonably low multiple, it’s also at a discount to book value with a current NTA of $11.25 per share (versus share price of ~$9.50). Even liquidating the business today should not put shareholders at a loss.
The business
Capral deals exclusively in the aluminium downstream business, meaning the finishing of aluminium products. Its main business is extrusion, which means turning aluminium into a specific shape or profile, like a window frame. They are Australia’s largest extruder with a 28% market share.
The company owns 6 plants with a good footprint across Australia, and is actively acquiring more. Extrusion plants and distribution centres are generally not costly to acquire as the business is niche-specific, the company spends about $3-$4m per acquisition which is easily funded by existing cash and cashflows.
The business is 50% driven by the construction sector (both commercial and residential) which remains strong in Australia, where there is a similar obsession to property investment as NZ and a shortage in affordable housing. Residential volumes are stable but have slightly decreased over the past decade (though have started growing again):
The other 50% is industrial, where Capral supplies aluminium extrusions and sheets for things like boats, trains, trailers, and industrial buildings (like stadium seating or railings, for example).
Industrial volumes have remained strong over the last decade:
Current challenges in the business are the volatile price of aluminium, which obviously Capral has no control of. Its effect to Capral’s business is direct but limited as Capral is not involved in any aluminum (bauxite) mining or refining. Their business is solely in extrusion and distribution, meaning they have greater ability to pass on higher aluminium prices to customers (whereas raw material miners generally do not).
The business is constantly at threat of cheap aluminium imports, but currently has government anti-dumping protections meaning countries like China and Vietnam cannot export low-cost aluminium to Australia without being tariffed to make them competitive with domestic players such as Capral. This protects the local industry but obviously this can change at any time and Australia’s government tends to be unpredictable with these issues and history shows they are not new to doing stupid things that damage their mining and raw materials industries. As of now Capral lobbies hard for protections and is confident they can keep them in place.
One good piece of news is the government’s current affinity to ESG which should be a tailwind. Capral’s low carbon aluminium products (branded LocAI) will appeal to the many Australian businesses required to hit emission targets for both legal and social reasons. The push to solar also means a big opportunity in the current $60m solar panel business in Australia, which all require aluminium to manufacture.
Overall the business is not without challenges, but there is no indication of risk of losses or even a fall in profit over the medium term. As interest rates continue to fall construction volumes should improve. The geopolitical uncertainty at the moment also has minimal effect on Capral’s business which is almost all domestic and they have stated they are directly unaffected by the recent US tariffs.
Capral is a strong cash-flowing business with zero debt that is aggressively returning capital to shareholders. The business is profitable and forecast to remain profitable with good prospects for growth in all its markets. In my estimation Capral is grossly undervalued by the market trading at just 3x earnings and should provide outsized returns in the short-medium term.
Disclosure: Long
Hey mate, You & i maybe alike with the way you see some things. I am 38 retired myself. Gambler/investor. Looking for next partner as may start a holding/trading company like the buffet with some spin on it. Such as investors get a share % not money management services that require licensing.
Capral is indeed an epic buy, shipbuilding/defense spend is on the way. >They work with Austal & another company building important stuff.
There are several risk 90% free popping up amongst smaller players:
this – Webjet – Viva leisure (VVA) all little to no debt ,cash , management prone to buybacks. Decent growth ahead in the right spaces.
liquidity is a major issue & but also the opportunity just make sure don't have to bail is the key.
Funny you have dusk in your portfolio: i sat outside and studied that shop for a month at mulitple locations. Refused at 60c mark just could not see women coughing up the money over and over again without buying a cheaper candle when things get tougher. Did not think it had much brand staying power, looks like was wrong. In hindsight- more single women- stay home more often at night – more crazies around into yoga -spiritual stuff etc ( eye rolls)
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