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mid-cap

Punt on This NASDAQ - Listed Basic Materials Stock – HAYN

May 20, 2022 | Team Kalkine
Punt on This NASDAQ - Listed Basic Materials Stock – HAYN

 

Haynes International Inc

Haynes International Inc. (NASDAQ: HAYN) is a sheet, coil, and plate manufacturer of nickel and cobalt-based alloys. The company's focus is on creating, producing, marketing, and distributing alloys for the aerospace, chemical processing, and industrial gas turbine sectors. High-temperature resistant alloys (HTA) and corrosion-resistant alloys (CRA) are among the company's offerings.

Latest News

  • Announcement of Q2 FY22 financial results: Haynes International Inc declared its financial results for the second quarter ending 31st March 2022, on 28th April 2022.
  • Declaration of Dividend: The Company announced on 28th April 2022, that the Board of Directors had declared a normal quarterly cash dividend of USD 0.22 per outstanding share of common stock. The dividend will be paid on June 15, 2022, to investors who were on the books on June 1, 2022.

Q2 FY22 Quarterly Financial result

  • In the second quarter of fiscal 2022, net revenues were USD 117.1 million, up 42.6 percent from USD 82.1 million in the same period of fiscal 2021. In the second quarter of fiscal 2022, volume was 4.3 million pounds, up 23.2 percent from 3.5 million pounds at the same time of fiscal 2021. The rise in pounds sold is attributable to a recovery in demand and strong sales in the aerospace sector, which grew by 53.6 percent, as well as the chemical processing and industrial gas turbine industries, which grew by 27.6 percent and 33.1 percent, respectively, from the second quarter of fiscal 2021.
  • In the second quarter of fiscal 2022, the cost of sales was USD 93.6 million, or 80.0 percent of net revenues, compared to USD 73.7 million, or 89.8 percent of net revenues, in the same period of fiscal 2021. Variable cost-saving strategies enable the Company to reduce the increase in costs during periods of greater net revenues, resulting in a drop in costs as a proportion of revenues.
  • Because of the causes mentioned above, gross profit for the second quarter of fiscal 2022 was USD 23.4 million, up to USD 15.0 million from the same time in fiscal 2021. In the second quarter of fiscal 2022, gross profit as a proportion of net revenue grew to 20.0 percent, up from 10.2 percent in the same period of fiscal 2021. The COVID-19 pandemic had a negative impact on the second quarter of fiscal 2021 since volumes were severely curtailed.
  • Operating income in the second quarter of fiscal 2022 was USD 10.7 million, compared to an operating loss of USD (3.7) million in the same period of fiscal 2021, and net income was USD 8.5 million, compared to a net loss of USD (3.6) million in the same period of fiscal 2021, because of the above factors, which included increased sales volume and higher pricing, as well as improved gross profit.
  • On March 31, 2022, the Company had USD 12.2 million in cash and cash equivalents, compared to USD 47.7 million on September 30, 2021. As of March 31, 2022, the Company has USD 21.5 million in outstanding borrowings against the line of credit. In the first six months of fiscal 2022, net cash consumed in operating operations was USD 36.8 million, compared to net cash created by operating activities of USD 31.1 million in the first six months of fiscal 2021, a difference of USD 67.9 million.

Key Risks

  • Prices on Underlying commodities: One of the primary risks for any company dealing in commodities is the volatility and performance of that commodity price in the market. With increasing, costs of commodities, unable to pass the appreciation to the next party will lead to lower financial margins for the company.
  • Macro-economic factors: Under current macro-economic scenarios especially rising inflation and the Ukraine-Russian war has affected supply chain disruption in almost all the industries in the global market. Any further longevity of these factors will only worsen the economic scenarios for the company and the economy overall as well.

Outlook

The large improvement in order entry rates over the last two quarters gives reason to be optimistic about the rest of the fiscal year. Increased shipments are expected in the second half of the fiscal year because of the Company's successful efforts to boost production rates through personnel increases and continuing inventory investment. Revenue and earnings are expected to be higher in the third quarter of fiscal 2022 than in the second quarter. Volume growth, continuous price, cost actions, and growing raw material tailwinds all contribute to increased profit leverage.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: REFINITIV, Analysis: Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

HAYN's stock price has fallen 15.37% in the past six months and is currently leaning towards the lower side of its 52-week range of USD 30.83 to USD 49.76. HAYN stock is under a long-term bearish cycle with the current price below both short-term (50-day) SMA and long-term (200-day) SMA. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 43.91

Considering the strong mining results for Q2 FY22, solid topline performance, positive outlook, associated risks, and current valuation. We recommend a "Speculative Buy" rating on the stock at the closing price of USD 36.98 as of 20th May 2022.

 

One-year technical chart as of 20th May 2022. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary

* Closing price as of 20th May 2022.

 Technical Indicators Defined: -

 Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.