Carbon Revolution Limited

CBR Details

Carbon Revolution Limited (ASX: CBR) supplies auto parts and components to OEMs. Its products include carbon fibre wheels and light wheels technology for the automotive, aerospace and transportation industries across the globe.

FY21 Takeaways: Below are highlighted in the presentation during the Annual General Meeting held on October 29, 2021.

• Two new Ferrari models were launched during the year with Carbon Revolution wheels – the 296 GTB and the Competizione.
• Signed four new programs with Original Equipment Manufacturers (OEMs) primarily in the electric vehicles that are expected to hit production in CY2023 and CY2024.
• Raised A$95 million equity to fund Mega-line expansion.
• Launched Diamond Weave Technology to improvise the design and quality of wheels.

Recent Updates: CBR to launch carbon fibre wheels that are featured in the Chevrolet Corvette Z06 model. CBR to commence the program in the early CY2022.  

Q1FY22 Updates: As per the recent quarterly activities report, below are some of the highlights.

• CBR met its sales expectations with A$6.2 million revenue and wheel sales of 2,100 in Q1FY22. However, revenues showed a 28.1% drop over Q4FY21. The semi-conductor shortage widely impacted the automotive industry. The company concluded its GT500 wheel sales early in Q1FY22.
• Its H1FY22 inventory built-up is in progress and the Mega-line project is on track.
• CBR had about 13 programs under pipeline and five programs are already awarded. Of these, one program is planned to enter FY22 production.
• It had closed the quarter with a cash balance of A$63.9 million as of September 2021 as compared to A$87.26 million in the preceding quarter. Out of a total A$17.25 million bank facility, it had drawn A$12.26 million.

Quarterly Sales Trend (Source: Analysis by Kalkine Group)

Key Risks: CBR is exposed to cyclicality risk in the automobile industry. Changes in consumer preference may impact sales volumes. High supplier concentration may erode pricing advantage. An increase in interest rates may affect funding availability and may halt its manufacturing line expansion plans.   

Outlook: CBR witnessed increasing customer engagement with a number of programs lined up for electric vehicles and premium SUVs. Its plans to ramp up production of Ferrari 296GTB and 812 Competizione programs for FY22. Its aerospace development program is progressing as per the plan. Inventory built-up is on cards for MY21 Ford GT500 to support expected sales growth in H2FY22. It is expecting second-half sales during FY22 to be significantly higher than the first half.   

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has been corrected by ~16.0% and is trading below to the average of the 52-week low-high price band of $0.960-2.954. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight premium to its peers, considering the new program for the Chevrolet Corvette Z06 model. For the valuation purpose, peers such as GUD Holdings Ltd. (ASX: GUD), Pwr Holdings Ltd. (ASX: PWH), National Tyre & Wheel Ltd. (ASX: NTD), and others have been considered. Considering the ramp-up plans for Ferrari 296GTB and 812 Competizione programs, optimistic outlook for H2FY22 sales, Mega-line expansion, potential upside as indicated by the valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the current market price of $1.020, as on 07 December 2021, 11:44 AM (GMT+10), Sydney, Eastern Australia.

CBR Daily Technical Chart, Data Source: REFINITIV 

Castillo Copper Limited

CCZ Details

Castillo Copper Limited (ASX: CCZ) is engaged in the exploration of copper, nickel, zinc, and cobalt deposits. It owns copper projects across Australia and Zambia. The company caters to worldwide customers.

Drilling Update: The company has completed initial drilling at the Arya prospects covering Queensland and Zambia. It is likely to receive the assay results from Litchfield and Piccasso Lithium project shortly post completion of due diligence. On September 25, 2021, the board has extended the options period to acquire the Litchfield and Picasso Lithium projects. The option agreement is now extended for another 30 days after the receipt of assay results. The board believes that both assets hold considerable potential to host lithium mineralization.

Q1FY22 Financial & Operational Update: CCZ remained focused on developing the Big One Deposit within the Mt. Isha copper-belt in northwest Queensland. On July 26, 2021, CCZ found 9% copper in the Big One Deposit assays along with visible mineralization up to 26m thickness. During the period, it had incurred cash outflows of A$518k from operations and no cash receipts from customers have been recorded. It had closed the period with a cash balance of A$10.260 million as of September 30, 2021.  

Current Ratio Trend (Source: Analysis by Kalkine Group)

Risk Analysis:  CCZ is an exploration-stage company with no revenues realized so far. Any delays in drilling or feasibility studies may drain liquidity from the balance sheet. Changes in the prices of spodumene may influence the realization. Availability of skilled labour during the pandemic may pose exploration challenges.

Outlook: The company is optimistic about assay results at its Arya project. It is likely to commence an inaugural drilling campaign for the Luanshya project. It is expecting to commission a fuller drilling campaign at Arya prospects in H1FY22. 

Stock Recommendation: Currently, the stock is trading below to its 52-week low and high price band of $0.028-$0.083. The stock went down ~8.82% in the past three months. On a TTM basis, the stock of CCZ is trading at a price-to-book value multiple of 2.1x lower than the industry (Basic Materials) median of 2.4x, thus seems undervalued. Considering the current trading level, exploration plans, drilling updates, decent cash balance, valuation on a TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.031, as on 07 December 2021, 11:45 AM (GMT+10), Sydney, Eastern Australia.

CCZ 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 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.