Sequoia initiates coverage on Veem with a price target of $2.09
\nVeem specialises in marine propulsion systems, serving global markets
\nVeem\u2019s technology and strong market demand drive Sequoia\u2019s bullish outlook\u00a0<\/p>\n
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Sequoia Financial Group has initiated coverage on Veem (ASX:VEE)<\/a><\/strong>, with a price target of $2.09<\/strong> (versus current price of $1.82).<\/p>\n Veem is a $237m market-capped marine technology company specialising in propulsion and stabilisation systems. The company also produces bespoke products and services for the marine, defence, industrial and mining industries.<\/p>\n Founded in 1968 and headquartered in Perth, the company first listed on the ASX in 2016.<\/p>\n Operations comprise foundry, machining, fitting and balancing services, which have historically been focused mainly on Australia. However, these are now being supplied to customers across export markets as well.<\/p>\n Starting in 2001, the company began focusing on marine technology.<\/p>\n This effort was supported by the knowledge and skills gained from specific acquisitions and the company\u2019s experience of working on the Australian Navy\u2019s Collins Class submarines.<\/p>\n \u00a0<\/p>\n Veem\u2019s Gyro Stabilizers<\/strong> are advanced marine stabilisation systems designed to reduce the rolling motion of vessels.<\/p>\n They work by using a spinning flywheel to generate angular momentum. When the vessel rolls, the gyro precesses, creating a counteracting force that stabilises the boat.<\/p>\n The main components include a heavy flywheel, a gimbal system to allow the gyro to tilt, and a control system to manage the gyro\u2019s operation.<\/p>\n Veem\u2019s marine propellers,<\/strong> meanwhile,\u00a0are high-performance propellers designed for various types of vessels, from leisure yachts to commercial ships.<\/p>\n They are custom-designed using advanced hydrodynamic principles to ensure optimal performance.They\u2019re made from high-quality stainless steel or bronze alloys, ensuring strength and corrosion resistance.<\/p>\n Veem\u2019s propellers are also globally known for their precision and balance, which leads to smoother operation and increased fuel efficiency.<\/p>\n \u00a0<\/p>\n Sequoia has a strong bullish outlook on Veem, driven by several key factors that show the company\u2019s potential for growth and long-term success.<\/p>\n Market opportunity<\/strong><\/p>\n In recent years, the global superyacht market has experienced robust growth, marked by an estimated operating fleet of about 9,233 vessels as of January 2021, according to Superyacht Times<\/em>.<\/p>\n This fleet has grown at a compound annual growth rate (CAGR) of around 3% each year to today.<\/p>\n Key potential sales regions for VEE include Europe, the Americas, and the Asia-Pacific.<\/p>\n European shipyards currently dominate both the fleet and order book. However, the Americas have experienced a decline in new build activity over the past two decades, leading to the downsizing or closure of many shipyards.<\/p>\n In contrast, the Asia-Pacific region has seen growth, although Australia and New Zealand have seen a decrease in market share.<\/p>\n \u00a0<\/p>\n Cutting-edge technology<\/strong><\/p>\n Firstly, Sequoia says Veem boasts an advanced intellectual property (IP) portfolio and a robust research and development (R&D) program.<\/p>\n The company\u2019s products, which are well-recognised and patent-protected, are the result of advanced design and innovation capabilities.<\/p>\n The company\u2019s world-class facilities and capabilities further enhance its market position.<\/p>\n Veem operates a purpose-built, 14,700 square meter fabrication and manufacturing facility in Canning Vale, Western Australia. This facility includes the largest non-ferrous foundry in Australia, with a crane capacity of up to 25 tonnes, and features cutting-edge robotic technology.<\/p>\n These high-quality standards have earned Veem a reputation as one of the leading global manufacturers of marine propellers and gyrostabilisers, along with other precision engineering products.<\/p>\n \u00a0<\/p>\n The gyrostabiliser market<\/strong><\/p>\n A significant growth opportunity lies in the gyrostabiliser market for Veem, says Sequoia.<\/p>\n Veem\u2019s gyrostabiliser business is poised for expansion as the technology continues to be adopted in the superyacht and commercial workboat market segments.<\/p>\n The market for large marine gyrostabilisers is estimated by Veem to be valued at approximately US$1.1 billion for new builds and US$ 13.5 billion for retrofits of the existing fleet.<\/p>\n \u201cVEE is essentially the only major manufacturer in the large marine gyro market, with fully developed products in place to capitalise on this position,\u201d says Sequoia.<\/p>\n \u00a0<\/p>\n Propeller market<\/strong><\/p>\n Veem\u2019s propeller business is also thriving.<\/p>\n Recent investments in new capacity and related equipment have enabled Veem to capitalise on this demand and improve manufacturing efficiency.<\/p>\n A solid propeller order book, positive customer feedback, and supportive industry reports all point to sustained global demand for Veem\u2019s propellers.<\/p>\n The total addressable market for inboard propellers in Veem\u2019s size range is estimated at US$ 2.6 billion, including an annual new build market of US$338 million.<\/p>\n \u201cThe propeller business continues to benefit from ongoing strong demand for its premium high- performance propellers,\u201d Sequoia noted.<\/p>\n \u00a0<\/p>\n Customer and supplier relationships<\/strong><\/p>\n Veem has built many long-standing customer relationships over the years, says Sequoia.<\/p>\n These relationships range from traditional interactions to highly collaborative partnerships, where Veem designs and manufactures products to meet unique customer requirements.<\/p>\n In FY23, Veem had two customers that each comprised over 10% of group revenue. The company has also developed a reliable global supply chain, creating a natural hedge for offshore sales and enabling it to ramp up production as needed.<\/p>\n Veem sources inputs from various countries, including the US, UK, Germany, Italy, China, and Malaysia.<\/p>\n \u00a0<\/p>\n Proven track record<\/strong><\/p>\n Veem has a proven track record of profitability.<\/p>\n The company delivered strong sales and earnings results in FY23 and the first half of FY24, driven by robust demand for the high-performance propellers and disruptive gyrostabiliser products.<\/p>\n Net profit after tax (NPAT) for FY23 and 1H FY24 was up 224% and 92%, respectively, compared to the previous corresponding periods.<\/p>\n The company\u2019s strong balance sheet also provides a solid foundation for future growth, says Sequoia.<\/p>\n Veem has significant undrawn credit facilities and gearing headroom available for future capital investment. In FY23, the net debt to net debt plus equity ratio was 34%, and interest cover was 6.0 times.<\/p>\n The business continues to generate positive operating and free cash flow, despite ongoing investments.<\/p>\n \u00a0<\/p>\n Experienced team<\/strong><\/p>\n Veem\u2019s highly experienced management team is another key strength, says Sequoia.<\/p>\n The company is led by senior executives with long histories at Veem.<\/p>\n The vendors of the Veem business during the IPO also continue to hold a large proportion of shares on issue, ensuring strong alignment between the Board, management, and investors.<\/p>\n \u00a0<\/p>\n Looking ahead, key milestones to track Veem\u2019s progress include the upcoming full-year FY24 results due in August, and updates on the delivery of its new Sharrow design propellers.<\/p>\n Additionally, ongoing investments in R&D, facilities, equipment, and internal systems will drive future growth, says Sequoia.<\/p>\n \u201cOne of the purposes of VEE\u2019s extensive R&D program is for the company to remain ahead of industry trends and potential disruption to the market,\u201d the broker said.<\/p>\n \u201cThis could be a threat for VEE if it was unprepared, or an opportunity if it was ready to take advantage of any such emerging disruption.<\/p>\n \u201cThe VEE share price has delivered significant gains over recent periods.<\/p>\n \u201cBased on current forecasts, we derive a DCF (discounted cash flow) equity value for VEE of $2.09 per share, with potential upside from material new contracts,\u201d Sequoia concluded.<\/p>\n \u00a0<\/p>\n\n \u00a0<\/p>\n \ufeff<\/span><\/span>\u00a0<\/p>\n The post MoneyTalks: Sequoia initiates coverage on marine tech stock Veem, sees smooth waters ahead<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"A quick look at Veem\u2019s technology<\/h2>\n
Why Sequoia is bullish on Veem<\/h2>\n
R&D to drive company\u2019s growth<\/h2>\n