Carbon Revolution Limited

CBR Details

Business Analysis: Carbon Revolution Limited (ASX: CBR) is engaged as an Original Equipment Manufacturer (OEM) catering to automobile companies. It is specialized in manufacturing carbon fiber wheels.

• The company is working on 15 active programs with 6 under production, 3 global OEMs and 9 programs are under development.
• CBR possesses a strong track record of 50,000 cumulative volume of sales since FY15 till FY22, under 9 awarded programs.
• Mitsubishi UFJ Financial Group has become the substantial shareholder in company with 5.04% voting power with effect from May 25, 2022.

Revenue Trend, (Source: Analysis by Kalkine Group)

Key Risks: The future performance of the company is dependent on expected growth in Electric Vehicle (EV) segment. However in case EV did not meet the expected growth, it will have a substantial impact on CBR revenue. The competitive positioning of CBR may deteriorate as the competition increase in this sector.

Outlook: The global automotive vehicle market as of 2020 was worth $38.33bn which is expected to grow at a CAGR of 5.51% and to reach $58.87bn by 2028. The company’s investment in Mega-line project phase 1 is expected to add production capacity of 75,000 wheels per annum

Stock Recommendation: The stock is currently trading below its average 52-week low-high level of $0.445-$1.340. The stock has been corrected by ~14.53% in the past one-month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target of low double-digit upside (in % terms). The company can trade at a slight premium to its peers considering its better competitive positioning, growth opportunity and increase in capacity, etc. For the purpose of valuation, peers such as GUD Holding Ltd (ASX: GUD), Pwr Holding Ltd (ASX: PWH), National Tyre & Wheel Ltd (ASX: NTD), and others have been considered. Considering the growth from the Mega-line project, expected growth in the automotive vehicle market, growth from the EV segment, current trading levels, expected upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on this stock at the closing market price of $0.500, up by ~5.263% as on 31^st May 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CBR Daily Technical Chart, Data 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 for 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 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 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 price

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