Carbon Revolution Limited

CBR Details

Carbon Revolution Limited (ASX: CBR) is a Geelong-based global technology company. It has successfully innovated, commercialised and industrialised the supply of carbon fibre wheels to the global automotive industry. The company has a market capitalization of ~$257.24 million as on June 9, 2021.

Results Performance (Half-Year Ended 31 December 2020 – H1FY21)

Revenue of the company for the interim period decreased by 14% YoY to $17.2 million, as revenue from the sale of wheels reduced by 10% and revenue from the sale of engineering services and tooling reduced 62% over the same period last year. Loss after tax for the period decreased by 85% YoY to -$14.8 million from a net loss of $98.6 million in the pcp. The cash balance, as on 31 December 2020, stood at $15.4 million. The interim result of the company was impacted by issues related to COVID-19 which led to reduced production and sales, impacting productivity and gross margins.

The Board of Directors declared no dividend for the period.

Key Data (Source: Company Reports)

Outlook:

Despite COVID-19 led disruptions, the company made strong progress in its industrialization program and commercialization of new fascia technologies. Further, the commissioning of a significant amount of new industrialized equipment is expected to reduce wheel costs. 

The company expects to deliver strong sales growth in FY21, underpinned by the expected rise in demand from EV segment of global automotive markets. This is towards confirmation that customers see carbon Revolution’s technology to be behind the rapidly growing market. Given the backdrop of an increased demand from the existing wheel programme in H2FY21 and strong progress on labour productivity, CBR is expected to become gross profit positive. Net cash flow from operating activities (including grants and reduction in work-in-progress) is also expected to remain positive in H2FY21.

Valuation Methodology: EV/Sales Multiple Based Illustrative Relative Valuation

Key Risks:

The company’s business performance is exposed to risks of  economic slowdown, trade war, supply chain disruptions caused either by the pandemic and natural disaster. 

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

Experiencing a low volatility, the stock has given a flattish close, forming a ‘Doji’ candle for the ongoing week. The technical indicator RSI with a reading around 33 and a flattish curve at the end suggests weak to flattish momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $1.58 whereas support could be around $1.00.

Stock Recommendation:

The company’s current ratio for H1FY21 stood at 2.03x, better than the industry median of 1.56x, implying a better liquidity position of the company as compared to the peer group.

We have valued the stock using EV/Sales multiple-based illustrative relative valuation and there are expectations that the stock price might witness a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering the fall in total debt as well as expectations that the company could deliver robust sales growth in FY 2021.

The stock declined by ~36.6% in 1 year. It has made a 52-week low and high of $1.065 and $3.048, respectively.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.255 per share, up by 0.400% on 9^th June 2021.

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.

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