Company Overview: Alpha HPA Limited (ASX: A4N) delivers High-Purity Aluminium Products with exploration interests in Australia and Indonesia. A4N is focused on its solvent extraction and refining technology to develop the High-Purity Aliminia (HPA) and related products for usage in light-emitting diode (LED) and lithium-ion battery (Li-B).

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A4N Details –

Material Business Updates

Binding Contract for Water Requirements: A4N entered into a contract with Gladstone Area Water Board (GAWB) for the HPA First Project and PPF to fulfil water requirements. The contract sets out the supply of potable water to the admin office and PPF and the supply of raw water to the HPA First Project.

Orica Agreements for Supply of Process Reagents: A4N and Orica Australia Pty Ltd (OAPL) have entered into negotiations to facilitate the HPA First Project with the supply of process reagents from OAPL’s Yarwun facility.

Successful Placement of $50 million: On 3 June 2021, A4N announced the completion of $50 million fundraising activity at $0.55/share, an 11.3% discount from the last closing price. The below table captures the usage of the funds.

Figure 1: Application of the $50 million Fundraising:

Source: Company Report, Analysis by Kalkine Group

Historical Performance

A4N holds a portfolio of under-development projects; hence no revenue streams are recognized yet. However, the project developments are in pace with A4N’s competition estimates. A4N is continuously striving for client base build-up and securing purchase contracts.  A4N’s total Assets and cash balance have substantially increased from equity funding activities and capital expenditures.

Figure 2: Strong Financial Position Supportive to Growth Strategies:

Source: Company Reports, Analysis by Kalkine Group

Fourth Quarter FY21 Performance:

Cash Position and Capital Expenditure: A4N reported an operating cash outflow of $2.556 million, with high costs being development ($1.533 million) and administration & corporate expenses ($0.820 million). Ending cash balance for FY21 stood at $50.344 million, post $50 million fundraise. In addition, PPF stands fully funded with a $27 million capital expenditure to fast-track the commercialization of high-purity precursor products.

Securing Global Marketing Partners: A4N signed MoU with APL Engineered Materials to encroach into Japanese and Chinese markets. A4N agreed with Technologica to sell products in Europe.

Full-Year FY20 Performance:

Cash Flow Support from Share Issuances and Regulatory Rebates: In FY20, operating cash outflow declined significantly to $0.399 million relative to outflows of $1.637 million in FY19, due to a $0.919 million R&D tax incentive and $0.311 million in advanced manufacturing growth centre rebate. The company funded its operations and development expenditure through issuances of shares totalling $13.50 million in FY20.

Build-up of Financial and Liquidity Position: Total assets increased extensively to $11.024 million from $4.741 million due to increased cash and cash equivalents. Cash balance increased to $7.985 million from $0.691 million in FY19 amidst improved cash flow from operations and share issues.

Top 10 Shareholders:

The top 10 shareholders together form ~35.65% of the total shareholding. Seckold (Norman Alfred) and Regal Funds Management Pty. Ltd. holds a maximum stake in the company at ~­­­8.49% and ~7.89%, respectively.

Figure 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

A4N held significant liquidity position with nil financial debts. Cash balance increased with corresponding capital expenditures in project developments. In addition, the asset base has increased significantly in FY20 due to the completion of a $50 million placement. As a result, A4N holds high potential for executing working capital investments with improved positions in current assets.

Figure 4: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Industry Drivers: Lithium-ion Battery (Li-B) is rising with a global uptrend in EV demand. Australian markets fall short on competition in battery metals supply relative to other key global players; hence a competitive opportunity exists. In addition, demand for electronic items and proliferated infrastructure expenditure drew significant demand for light-emitting diode (LED).

Acceleration in Product Marketing Strategies: Pursuant to the successful capital raising for the PPF, A4N engaged in comprehensive strategies to encroach in multiple geographical regions and closed MoUs to uptake Europe, Japan and China markets.

Key Risks:

With no revenue streams, A4N remains a high-risk investment. Although MoUs are executed, A4N lacks concrete agreements for product supply. In addition, regulatory Risks and the potential risk of discontinued rebates may increase operating cash outflows.

Stock Recommendation:

A4N has delivered 3-month and 6-month returns of ~-11.93% and ~+20.00%, respectively. The stock is trading above the average of the 52-week high price of $0.675 and the 52-week low price of $0.200. Considering the current technical levels, resilience in the battery & electric vehicle market, fundraising and supporting balance sheet for its ongoing projects, we give a “Speculative Buy” on the stock at the current market price of $0.465, as of 10 August 2021, 02:12 PM (GMT +10), Sydney, Eastern Australia.

A4N Daily Technical Chart (Source: REFINITIV)

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 on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and 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 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 unfavourable movement in the stock prices.

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