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 ~$307.72 million as on May 7, 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. The cash balance, as on 31 December 2020, stood at $15.4 million.

The Board of Directors declared no dividend for the period.

Key Data (Source: Company Reports)

Outlook:

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.

Key Risks:

There is a risk that Carbon Revolution’s operations and future demand are further disrupted by the spread of COVID-19. Further, Government policies may substantially impact Carbon Revolution’s operations.

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

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 applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering fall in total debt. The stock declined by ~33.2% in 6 months and by ~37.2% in 3 months. It has made a 52-week low and high of $1.270 and $3.048, respectively and is trading towards the 52-week lower levels.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.595 per share, down by 0.313% on May 7, 2021.

CBR Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

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

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