AMPCO PITTSBURGH CORP (AP) stock intrinsic value fair value estimate & owner earnings analysis

Ampco-Pittsburgh makes forged and cast steel rolls for steel and aluminum mills (Forged and Cast Engineered Products, about $292.6 million of 2025 sales) and air-handling units, heat-exchange coils and centrifugal pumps for power-generation, nuclear, commercial and U.S. Navy customers (Air and Liquid Processing, $141.6 million). Total 2025 sales were $434.2 million, about 59% in the United States. The company owns 59.88% of a roll-making joint venture in China (Akers TISCO Roll); its partner owns the other 40.12%. It also carries a long-running asbestos liability tied to older pump and coil products. WHAT CHANGED SINCE OUR LAST ANALYSIS. We previously estimated $1.00 (bear), $3.50 (base) and $11.00 (bull) per share. We now estimate $(7.59), $(1.55) and $2.40. The news is mixed. On the positive side, the U.K. roll plant (Union Electric Steel UK), which lost money for years, went into administration in October 2025 and is no longer part of the company; in the first half of 2026 operating income was $7.6 million, net income attributable to shareholders was $0.6 million against a $6.2 million loss a year earlier, and operating cash flow was +$1.9 million against -$7.6 million. On the negative side, roll order backlog fell $50.5 million during 2025 (from $248.4 million to $197.9 million). Our earlier work also counted only about $85 million of net debt, whereas borrowings were $137.6 million at June 30, 2026 (at December 2025 this included a $46.3 million obligation from the sale-leaseback of the company's plants), and it did not deduct the Chinese partner's share of the joint venture. With debt fully counted, little is left for shareholders. HOW WE MEASURED IT. Owner earnings are operating cash flow less working-capital swings, stock compensation and the capital spending needed just to stand still. Cash paid to asbestos claimants (net of insurance) and pension contributions are real costs and stay in; the non-cash $41.4 million charge for deconsolidating the U.K. plant and other non-cash write-offs are not counted against earnings. Because lenders are paid first, we value the business before interest and then subtract debt. Before interest, the business generated the following (in $ millions, 2018 through 2025): -12.2, -5.8, +6.3, -23.1, -14.1, -10.1, -1.2, +2.9. We anchor on 2024-2025 (average of the two years about +$0.9 million, or $0.04 per share) because the equipment program at the roll plants (capital spending of $15-20 million a year in 2021-2023) finished in mid-2024 and earlier years include the U.K. plant's losses. Every earlier year was worse, so this anchor is generous rather than harsh. We discount at 6% and use 21.4 million diluted shares. GROWTH CHECK. Business cash flow improved by $4.1 million in 2025 (from -$1.2 million to +$2.9 million). Our base case assumes a smaller $3.5 million improvement in 2026 (to $6.4 million). The dated reasons are the U.K. plant's exit in October 2025 and the first-half 2026 results described above. BASE CASE. Drivers credited: (1) The end of U.K. losses, worth about $4.0 million a year from 2026. First-half 2026 operating income annualizes to roughly $15 million versus roughly $9 million for 2025 after removing one-off charges (our calculation); after subtracting about $1.5 million of the gap that comes from lower depreciation rather than cash, the cash benefit is about $4.4 million, and we credit $4.0 million because only two quarters support it. (2) Falling pension contributions: the company expects $3.8 million in 2026, $2.7 million in 2027 and 2028, $2.0 million in 2029 and $1.7 million in 2030, against a 2024-2025 average of $5.8 million, which is worth $2.0 million rising to $4.1 million a year. (3) A cost: net asbestos payments are expected near $9.0 million in 2026 versus an $8.5 million 2024-2025 average, and the company expects them to continue for the foreseeable future. Net payments ran $8 million to $11 million each year from 2020 to 2025 (before a one-off insurer reimbursement in 2024), and the liability was re-estimated upward again in 2023 ($40.9 million charge) and 2025 ($12.4 million charge), so we do not assume it ends. Business cash flow is $6.4 million, $7.5 million, $7.5 million and $8.2 million for 2026-2029, then $8.5 million a year with no growth, because the plants need constant reinvestment (already charged) and nothing we can name and evidence supports growth. Left out: sales growth (air-handling, nuclear coils and replacement pumps are growing, but that depends on the market, while roll backlog is falling), margin gains, the $7.5 million recovery the company expects from the U.K. insolvency, and government equipment grants ($2.5 million in 2025). Worth: the business is worth $137.7 million ($6.44 per share). Owes: borrowings of $137.6 million less cash of $7.0 million is $130.5 million, plus $3.7 million because the revolver (about 7.1%) and equipment term notes (7.8%) cost more than 6% over their life, for $134.2 million ($6.27 per share); plus the China partner's share of joint-venture profit, about $2.2 million a year, valued at $36.7 million ($1.71 per share). Difference: $(33.1) million, or $(1.55) per share. In this case the company appears to owe roughly $33 million more than the business is worth. BEAR CASE. Three risks already visible in the filings: roll shipments fall again, as in 2025 when lower volume cost $5.8 million of operating result and roll backlog dropped about 20%; capital spending returns to its eight-year average of about $12.9 million (versus $10.5 million in 2024-2025), costing $2.4 million a year; and net asbestos payments run at the 2023 level of $10.6 million, $2.1 million above the recent average. The U.K. benefit and pension savings are kept. Business cash flow is -$3.4 million, -$2.3 million, -$2.3 million, -$1.6 million and -$1.3 million for 2026-2030; after that nothing we can name supports value, so it is treated as zero. Worth: $(9.4) million ($(0.44) per share). Owes: the revolver ($52.2 million at December 2025) matures in June 2030, the credit agreement requires a fixed charge coverage ratio of at least 1.05 unless enough borrowing availability is kept, and lenders gave a consent in October 2025 modifying a covenant trigger period. Refinancing about 3 points higher adds $7.8 million, so debt is $142.0 million ($6.64 per share). The partner's joint-venture share at $1.5 million a year for ten years is $11.0 million ($0.52 per share). Difference: $(162.5) million, or $(7.59) per share. Here the company owes far more than it is worth and shareholders would be left with nothing (in practice their loss is limited to what they paid). Industrial revenue bonds of $9.2 million can be put back to the company starting in late 2027; management considers that unlikely. BULL CASE. Base case plus two named levers: the full $4.4 million U.K. benefit, and roll shipments regaining the $5.8 million lost in 2025 from 2027 as tariffs cut steel imports (the filing cites Commerce Department data showing lower 2025 imports, and backlog for the smaller forged engineered products line rose $8.6 million). Business cash flow is $6.8 million, $13.7 million, $13.7 million and $14.4 million for 2026-2029, then $14.7 million a year. Worth: $235.6 million ($11.01 per share). Owes: $134.2 million ($6.27 per share) plus the partner's joint-venture share at $3.0 million a year, $50.0 million ($2.34 per share). Difference: $51.4 million, or $2.40 per share. WHAT COULD MAKE THIS WRONG. The asbestos exposure is the largest unknown: at December 2025 the liability was $198.3 million against $126.8 million of expected insurance recoveries, insurers' coverage is shared with Howden North America for Buffalo Forge products, and the estimate was raised by $25.1 million in 2025; by June 2026 the figures were $185.0 million and $117.0 million. A faster fall in payments or a strong roll cycle would lift value; another upward re-estimate would lower it. We tested the U.K. benefit against the first-half 2026 results, which support it but cover only two quarters, and we tested the asbestos assumption against six years of payments, which support treating it as continuing. WHAT WE COULD NOT RECONCILE. The filings do not give the U.K. plant's stand-alone results, so its benefit is our estimate from consolidated figures. We did not locate the end date of the company's asbestos projection, so payments are treated as continuing at the current level. Government grants received for equipment ($2.5 million in 2025) are not deducted from capital spending. The June 2026 figures come from the quarterly data summary rather than the full quarterly report. MARGIN-OF-SAFETY PRICE. On today's evidence there is no meaningful margin-of-safety price, since even the base case is below zero. If business cash flow reached about $12 million a year for two years running, or borrowings fell well below $138 million, value would be near the bull estimate of $2.40, and with this much debt the margin-of-safety price allows for roughly a 90% margin of safety, which points to about $0.25 per share.