Aeris Environmental Limited

AEI Details

Appointment of a New Independent Director: Aeris Environmental Limited (ASX: AEI) is a developer, manufacturer, and marketer of eco-friendly technology solutions. As of 23 April 2021, the market capitalisation of the company stood at ~$56.08 million. On 21 April 2021, AEI announced that Dr Jenny Harry had been appointed as an Independent Non-Executive Director to the company’s Board.

Release of 1HFY21 Results: AEI reported ~$5.21 million in revenue, up by 59.3% YoY during 1HFY21. However, its sales were affected due to the COVID-19 lockdowns and winters in the Northern Hemisphere. The company had been targeting the material production of infection prevention products (low-margin) as essential services in response to the COVID-19 outbreak. It has reported the resumption of the conventional supply chain from other suppliers from now on. It received cash receipts of $8.11 million in 1HFY21 and delivered a positive operating cash flow of $756k for 1HFY21, both higher on a pcp basis. It recorded a gross margin of 43% in 1HFY21. Its AerisGuard Bioactive Filter and AerisGuard Bioactive Surface Treatment products used in refrigeration and HVAC are now witnessing interest from schools, public transport, and corporates. It held a cash and cash equivalents balance of $13.58 million in 1HFY21.

1HFY21 Key Highlights (Source: Company Reports)

Key Risks: The company’s business activities are exposed to financial risks such as credit risk, market risk, liquidity, and interest rate risk on cashflows. AEI risks supply chain disruption due to COVID-19 spread, approval from authorities in different markets for its products, desired launch, and acceptance of its newly rolled-out products.

Outlook: AEI expects an improvement in its gross margins in the future. The company aims to have a direct presence in China via partnerships with the established distribution firms. The company remains on track to unveil the Aeris Defence product range (which includes wipes and disinfectant liquids). AEI had planned the launch of its hand sanitiser product – ActiSan, in the US market in March 2021 quarter.

Stock Recommendation: The stock of AEI gave a positive return of 37.67% in the past three months and a positive return of 58.63% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.22. The stock of AEI has a support level of ~$0.2085 and a resistance level of ~$0.2722. On a TTM basis, the stock of AEI is trading at an EV/Sales value multiple of 2.6x, lower than the industry median of 3.2x, thus seems undervalued. Considering the above-mentioned factors, current trading levels, increase in the top-line, the three-year new agreement with the US Army, the launch of Acti-San in the US, valuation on a TTM basis and the key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.227, down by ~1.087% on 23 April 2021.

AEI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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