Investment Thesis for Advanced Metallurgical Group (AEX: AMG)

Abstract

Advanced Metallurgical Group (Euronext: AMG) is a global critical materials company headquartered in the Netherlands. AMG produces specialty metals, alloys, and high performance materials such as ferrovanadium antimony, tantalum, and niobium. They also engineer advanced vacuum furnace systems and operate vacuum heat treatment facilities for the transportation and energy industries. The market currently prices AMG at 26.42 Euros ($29.58 USD, market close 06/16/17, 0.89 Euros / Dollar Exchange Rate, Figure 1) per share. By using a Probabilistic Discounted Cash Flow Model (P-DCF), we estimate a free cash flow (FCF) per share of approximately $33.50, or 29.82 Euros. This estimate is based on expectations of AMG’s current product portfolio as well as their ongoing spodumene project, and suggests that the stock is currently trading at a 13.25% discount. AMG has also provided an EBITDA target of $200M+ by 2021,1 and reaching this target yields the estimated FCF per share mentioned above. Our analysis shows that AMG has the opportunities, leverage, and appropriate compensation metrics attain this target, so we rate AMG a buy.