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EQUITY RESEARCH
Specialty Chemicals
25 May 2015
Rating
Alexium International Group Ltd (AJX.ASX)
BUY
Previous
BUY
Price Target
$ 1.10
Confidence in commercialisation upgrades revenue guidance
Previous
Event:
Share Price (A$)
·
Management update on CY15 revenue guidance.
·
·
·
·
·
$ 0.52
52 week low - high (A$)
0.08 - 0.83
Valuation (A$/share)
Investment Highlights:
·
$1.10
1.11
Methodology
EV/EBITDA
Risk
High
Remains on target for successful first year of commercial sales: management
update reinforces that CY15 remains on track for the roll-out of FR products
across multiple commercial sectors and the military sector. This follows 2 Capital Structure
confirmed contract sales generating revenue earlier in the year with up to 20 Shares on Issue (m)
Shares on Issue diluted (m)
groups now into pre-production and production scale up activity.
261
296
Free Float (%)
90%
Sales pipeline extends to 20 customers: Over 20 customers are now engaged
with AJX across pre-production, production and scale up of the company’s FR 12mth Av Daily Volume ('000)
chemistries. At the end of the first quarter this was circa 15, a healthy 30% Market Cap ($m)
Cash ($m)
increase in the commercialisation pipeline vs end of Q1.
1,778
154
11.0
Debt ($m)
0.0
Revenue guidance provided for CY15 exit rate of US$10m: guidance from
management has now been upgraded to target a CY15 exit run-rate of US$10m EV ($m)
revenue, previously US$5m. This anticipates a group of customers progressing
Key Metrics (CY)
to sales contracts across home furnishings, automotive, outdoor and military
143
2014a
2015e
2016e
0
10
55
97
-4.2
3.2
17.7
30.9
Revenue ($m)
US regulatory change remains the driver for eco-friendly FR products: a federal
EBITDA ($m)
bill continues to be drafted by members of congress for a reading in the House
targeted before the summer break, and if approved, enacted in the 2H CY15. We NPAT ($m)
EPS (¢)
view the reading of the bill will increase the awareness of AJX by US investors.
Second phase underway for next-gen FR fabric for US Army: following the
success of AJX’s FR in downselect one, the company moves into the second
phase during the June quarter with an outcome due by the December quarter.
AJX’s estimate of historical volumes for FR indicates a global market of US$250m
is available on the back of success with the US Army.
-4.4
1.7
17.0
30.2
-0.02
0.01
0.06
0.12
Revenue Growth (%)
n/a
4032%
452%
75%
EBITDA growth (%)
n/a
121%
267%
94%
NPAT margin (%)
n/a
32%
32%
32%
EPS growth (%)
n/a
89%
262%
94%
-34.1x
44.7x
8.1x
4.6x
-30.9x
80.9x
8.0x
4.5x
591.3x
14.3x
2.6x
1.5x
First mover advantage & blue sky potential: we continue to estimate a
conservative 13% market share over a 4yr period could generate ~US$250m in EV/EBITDA
annualised revenue and ~US$90m and US$60m EBITDA and NPAT respectively. PER
The global market for FR across AJX’s target sectors is estimated to reach EV/Revenue
US$2.2b by 2019, based on 3% CAGR growth from new products and markets.
Recommendation
Share Price Graph
0.90
Volume
('000)
18,000
0.80
16,000
0.70
14,000
0.60
12,000
0.50
10,000
0.40
8,000
0.30
6,000
0.20
4,000
0.10
2,000
0.00
0
Apr 15
Feb 15
Mar 15
Jan 15
Dec 14
Oct 14
Nov 14
Sep 14
Aug 14
We have an increased level of confidence for new contracts near term and
increasing customers moving through the pipeline can support management’s
CY15 revenue guidance of US$10m.
May 14
·
Recent weakness in the share price provides a buying opportunity given there is
no change to the fundamentals of the company’s commercialisation program.
Jul 14
·
We reiterate our BUY recommendation with a 12mth PT of $1.10/share based
on our EV/EBITDA valuation range of 13-15x FY16 EBITDA.
Jun 14
Share Price ($)
·
2017e
Analyst
Martin Carolan
+61 2 9993 8168
martin.carolan@fostock.com.au
Foster Stockbroking is engaged in providing AJX with corporate
services for which it has earned fees and continues to do so.
Services include, but are not limited to capital markets advisory,
institutional research, and marketing roadshows. FSB also acted
as Placement Agent to the $8.45m Placement in May 2015
where it received fees this services.
DISCLAIMER: Foster Stockbroking Pty Ltd does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Refer full disclosures at the end of this report.