Switzer likes AJX today fyi
Alexium International (AJX, 50 cents)
Market capitalisation: $152 million
Five-year total return: 45.8% a year
FY18 consensus forecast yield: n/a
Analysts’ consensus target price: $1.00
Much of the excitement that surrounded materials technology company Alexium International (AJX) in the early days after its 2010 listing was its potential to crack the global defence market: the company owned the global rights to the Reactive Surface Technology (RST) platform technology, a process used to treat clothing and other textiles so the material is protected from biological and chemical attack. Alexium still has defence applications – it has been working for several years with Natick (the US Army Research Centre) and the US Marines, along with a prime contractor that currently supplies the uniforms – and the company specifically referred in its August 2017 newsletter to the potential for use of its products implicit in any US military buildup – but these days, there is a wider array of use possibilities for Alexium’s technology.
Alexium designs and produces fire-retardant chemical treatments for textiles, and sells them worldwide. It has patents and patent applications on 25 different chemical solutions, including water-proofing, moisture wicking and anti-microbial activity, which are used in bedding fabric, sportswear, workwear and uniforms, tenting, and transportation applications. Alexium’s products can potentially be used in a wide range of other areas including coating technology for building materials, including cladding. After the recent Grenfell tower disaster in London, that is an area that builders and property owners are looking at very closely.
At the moment, the bedding industry is the main driver, with the company’s strategy to create market awareness of its products in that industry, before expanding into other markets with unmet technological needs. In 2017, Alexium has begun supplying chemicals to US homewares maker Pegasus Home Fashions for a new line of “cool touch” pillows, and has make its first shipment of its Alexicool technology to the single largest producer of mattress fabrics in the world.
The company says these continued gains in the bedding and mattress industry are creating a firm foundation for sustainable growth and a profitable first half of FY18.
While the bedding business is growing, the company also says FY18 will see an increased effort to diversify Alexium’s revenue streams outside of textiles: the company is pushing into epoxy/polymeric markets, and is exploring opportunities in protective coatings and wood treatments.
Alexium’s revenue rose almost sixfold in FY17, to $24 million, but the company reported a net loss of $12.1 million, or 4 cents a share. But analysts have FY18 pencilled in as the breakthrough year for profitability, expecting EPS of 0.3 cents, as sales improve and margins begin to outweigh costs.
There is some concern on the debt front, but the company reported that at the end of FY17 it had $3.4 million in cash and $1.4 million in receivables, and in addition, it was about to sign a US$10 million debt facility: together with cash generation
from higher realised margins, this would be the foundation to provide working capital for growth. The company said it did not need to raise additional equity, but left in place the caveat that it would only do so to finance rapid growth arising from large defence sector sales, or other areas where large orders required additional working capital.
Analysts are highly positive on Alexium, seeing $1 as achievable in the medium term.
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