Carbon Revolution

CBR Details

Carbon Revolution (ASX: CBR) has effectively innovated, commercialised and industrialised the supply of carbon fibre wheels to the automotive industry globally. It is also a tier-one OEM supplier.

Results Performance (For the Period Ended 30 June 2021)

Generated Revenue of $8.7 million in Q4FY21: The company has recorded revenue of $8.7 million, a growth of 7.5% over Q4FY20, while it was down by 2.3% over Q3FY21. Sales of wheels volume increased by 2.7% QoQ to 3,218, however, it reduced by 6.1% YoY.  

Decline in Revenue by 10.2% YoY in FY21: The company has generated revenue of $34.9 million in FY21, down by 10.2% over FY20 with overall wheels sales volume declining  by 8.6% to 12,749.

Cash Balance stood at $87.3 million: The company’s cash balance at the end of the period stood at $87.3 million and the net cash inflow for the quarter remained in line with expectations at $74.0 million.

Key Data (Source: Company Reports)

Two New Wheel Programs Launched

The company, on 25 June 2021, declared that its carbon fibre wheels are featured on the Ferrari’s two new car models - the 812 Competizione and 296 GTB. Both programs are undergoing production.

Outlook

The company has completed the fully-underwritten equity raise program of $95 million in Q4FY21. It will utilise the proceeds to finance the Phase 1 Mega-line expansion. The Phase 1 Megaline project is progressing as per plan and in line with budget. In FY22, it will make further progress on the detailed design, equipment procurement and commencement of commissioning activities for the Phase 1 Mega-line project.

Risks

The company has highlighted the prevailing COVID-19 related uncertainties and disruptions facing the global automotive industry in the near term. Further, the production of cars  continues to be impacted by the shortage in the supply of semiconductors, globally. The company’s operations are susceptible to government policies or other authoritative directions.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering the covid-19 related impact and uncertainties and issues associated with the chip-related supply.

Considering its cost saving strategies through ongoing improvements in technologies, equipment and processes along with the advancement in its Phase 1 Mega-line project and developing revenue drivers, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.005 per share (Time: 3:07 pm (GMT+10), Sydney, Australia) on 2^nd August 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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