Archer Materials Limited
AXE Details
Sale of Mineral Tenements: Archer Materials Limited (ASX: AXE) is involved in the development and sales of an A1 BiochipTM lab-on-a-chip technology (“A1 Biochip”) and a CQ® quantum computing qubit processor chip (“CQ Chip”). As of 25 May 2021, the market capitalisation of AXE stood at ~$163.87 million. On 24 May 2021, AXE announced the relocation of its head office and principal place of business to Adelaide. On 21 May 2021, AXE reported about the ongoing sale of its mineral tenements (“The Tenements”) to NextGen Materials Pty Limited (“NextGen”) and iTech Minerals Pty Limited (“iTech”). Both these firms are planning to submit Prospectus and get listed on the ASX by the close of September 2021. AXE has received $150,000 cash from “NextGen” and will receive $1.85 million either in cash or shares at the election of NextGen besides a bonus and royalty sum at the completion. The sale proceeds from the “NextGen” deal will be used in the development of the CQ quantum computing chip and biochip.
AXE will receive 50 million “iTech shares” at the completion of the deal. All the shares will be distributed on pro-rata basis to each AXE shareholder (~ 1 new iTech share for every 4.6 AXE shares held at the record date). AXE and its shareholders stand to benefit from any exploration success on the tenements through their shareholding in iTech and via royalty and possible shareholding (if no paid in cash) in “Next Gen”.
New Quantum Contract with IBM: On 4 May 2021, AXE announced the implementation of a new quantum computing contract with IBM. AXE will continue to use IBM's open-source Qiskit software and developer tools, access to its Quantum Computation Center to progress on the advancement of quantum computing.
A Sneak-Peak at the Q3FY21 Results: During Q3FY21, AXE reported the grant of a Japanese patent for CQ® quantum computing chip technology. AXE advanced on the sale of all its mineral tenements as it focuses on becoming a deep technology business. In Q3FY21, AXE received a Notice to Proceed from Baudin Minerals Pty Limited for the sale of two Eyre Peninsula Tenements and $100,000 payment. In April 2021, it declared the conditional sale of its remaining tenements also. The company touched the CQ® chip development milestone with the electronic transport in a single qubit. AXE strengthened its biochip nanofabrication capabilities on silicon wafers, in sync with its national strategic manufacturing priorities.
AXE used $533,000 of net cashflows in operating activities during Q3FY21. It spent $33,000 on exploration activities and received $173,610 from the exercise of unquoted options during Q3FY21. It held a cash balance of $6.61 million and was debt-free as of 31 March 2021.
Q3FY21 Cash Flow from Operating Activities (Source: Company Reports)
Key Risks: The company faces the risk of technological disruptions in the quantum computing field and commercialising uses of its developed chip and technology. It fears the risk of developing and protecting its IP.
Outlook: The sale transactions of mineral tenements are progressing well and expected to complete by the close of September 2021. With the sale of the tenements, AXE will be able to apply for a change of GICS code to “Semiconductors” and addition to the S&P/ASX All Technology Index (ASX: XTX). It aims to become a technology focused business. With the grant of the Japanese patent, AXE can access the high-value Japanese market for its CQ chip. AXE progressed on its patent applications (CQ® chip) in China, Australia, and the US while its HK application is pending examination. AXE has submitted the required paperwork with the South Australian government for the Ministerial approval for the sale of Eyre Peninsula Tenements.
Stock Recommendation: The stock of AXE gave a negative return of 11.62% in the past month and a negative return of 24.75% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $ 0.355-1.240. The stock of AXE has a support level of ~$0.716 and a resistance level of ~$0.813. On a TTM basis, the stock of AXE is trading at a price to book value multiple of 8.8x higher than the industry (Metals & Mining) median 2.8x. Considering the absence of revenue from core business operations from 1HFY18-1HFY21, valuation on a TTM basis, higher net loss in 1HFY21, we give an ‘Avoid’ rating on the stock at the current market price of $0.760, up by 4.827% on 25 May 2021.
AXE Daily Technical Chart, Data Source: REFINITIV
First Graphene Limited
FGR Details
Announced Results from the Collaborative Research: First Graphene Limited (ASX: FGR) is a mineral exploration and advanced materials firm with a primary manufacturing base in Henderson, near Perth. It holds 13 exploration licences over 39.5K hectares together. It develops and produces high technology graphene materials in Sri Lanka and Australia. As of 25 May 2021, the market capitalisation of FGR stood at ~$125.91 million. On 17 May 2021, FGR announced the approval and issuance of 31,000 shares given the exercise of 31,000 quoted options (ASX Code: FGROC) at $0.25 per share. The issue did not require shareholder approval and was issued without disclosure under section 708A(5)(e) of the Corporations Act 2001. On 11 May 2021, FGR announced the preliminary results from the research partnership between FGR and Manchester Fuel Cell Innovation Centre at Manchester Metropolitan University (MMU). The results confirmed the metal oxide coated PureGRAPH® materials (graphene) as potential oxygen reduction reaction (ORR) catalysts. The graphene materials can be used as a cheaper alternative to high-cost platinum in the next generation of alkaline fuel cells.
March Quarter (Q3FY21) Takeaways: During the quarter, FGR inked a Memorandum of Understanding (MOU) with Gerdau S.A. As per the MOU, Gerdau will market FGR’s products and develop product applications in mutually decided business areas and sectors. The companies have decided to collaborate for the introduction of graphene materials and graphene usages in the US market. It also declared the extension of its commercial relationship with planarTECH during Q3FY21. Currently, FGR supplies PureGRAPH® products to planarTECH. As per the extended partnership, planarTECH will market FGR’s products to producers in China, South-East Asia, Taiwan, Korea, and Japan. From March 2021, the companies have also added the distribution of PureGRAPH® AQUA range of graphene additives to extend their business relationship. During the quarter, FGR ran a 62-week trial using the PureGRAPH® enhanced wear liners and received a six-times longer life using graphene-based liners compared to PU liners. It announced the return of successful results in the bucket liner project using the PureGRAPH® enhanced liners. During the quarter, FGR announced the appointment of Mr Aditya Asthana as the new Chief Financial Officer (CFO) and Company Secretary, Mr Michael Bell as the new CEO and Mr Michael Quinert as a Non-Executive Director.
FGR reported net cash outgoings of $2.41 million and cash receipts of $38,000 during Q3FY21. It held a cash and cash equivalents balance of $3.18 million as of 31 March 2021.
Cash Flows from Operating Activities, Q3FY21 (Source: Company Reports)
Key Risks: The company faces the risk of changes in the production, prices, costs, and process technologies of graphene products. It bears the prevailing uncertainty due to the pandemic conditions and the risk of developing its IP for manufacturing advanced graphene-based products.
Outlook: The MOU with Gerdau S.A. allows Gerdau and FGR to discuss terms for an initial binding agreement for the distribution and set ground for potential investment and share acquisition from Gerdau. MMU and FGR plan to conduct a four-month project in partnership. MMU’s Business Engagement Seed Fund will financially support new product development in hydrogen and fuel cell technology. MMU team will emphasise further maximising the test devices and extending comparisons with the presently available industrial catalysts.
Stock Recommendation: The stock of FGR gave a negative return of 18.51% in the past three months and a negative return of 2.32% in the past six months. The stock is currently trading at its 52-weeks’ average price level of $0.110-$0.330. The stock of FGR has a support level of ~$0.209 and a resistance level of ~$0.231. On a TTM basis, the stock of FGR is trading at a price to book value multiple of 10.4x higher than the industry (Metals & Mining) median of 2.8x, thus seems overvalued. Considering the net loss in 1HFY21, negative ROE, valuation on a TTM basis, we give an ‘Avoid’ rating on the stock at the current market price of $0.220, down by 6.383% on 25 May 2021.
FGR Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: 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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