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News: Alexium International receives Speculative Buy from Perth broker

  1. Alexium International Group (ASX:AJX, OTCQX:AXXIY) has received a Speculative Buy from Perth based stockbroker Argonaut securities.

    The following is an extract from the report:


    GETTING FIRED UP


    Quick Read


    Alexium (AJX) is a chemicals and solutions company that develops and licences flame retardant specialty chemicals and reactive surface treatment technology.

    While the Company has recently made some exciting progress on flame retardant fabrics for military applications, the global commercial flame retardant chemical market offers substantially larger opportunities.

    In our view, AJX’s environmentally-friendly, cost effective technology places it in an excellent position to capture market share.

    We rate AJX a Speculative Buy.


    View | Ticking Boxes

    Progressing well with Department of Defence (DoD): AJX has been working closely with the US DoD to develop flame retardant technology.

    The recent announcement that AJX had been invited to participate in the funded program was a key milestone and bodes well for future revenue generation.

    President Obama’s signing of the National Defense Authorisation Act highlights the potential to expand to other areas of the military.

    Commercial market the main game:

    Although there has been recent progress and news flow in the Defense arena, the commercial market is the largest opportunity for AJX.

    The flame retardant chemical market is expected to grow at a healthy 5.7% CAGR for the next 5 years to reach $10b by 2019 (according to MarketsandMarkets).

    There are many avenues of potential revenue for AJX, spanning a wide range of industries including military, workwear, transportation, interior furnishings, upholstery and others.

    “Green” technology a key competitive advantage:


    An increasing focus on the impact of chemicals on the environment and more stringent regulations may negatively impact AJX’s competitors who use brominated, halogenated or other harmful compounds.

    AJX’s “green” chemistry, however, means that the Company is well placed to benefit from the shift towards more environmentally-friendly products.

    Expect long term recurring revenue and high margins:

    We believe it is likely that once contracted, clients will engage AJX on a long term basis, providing recurring revenue streams.

    Further, relatively low fixed and variable costs mean that the Company has the ability to generate impressive margins and free cash flow.

    Key risks:

    AJX is still in the early stages of commercialising its technology which means risks are inherently high.

    Factors that could adversely impact AJX relate to commercialisation, competition and new technologies, research and development funding, regulatory and litigation risks.


    Recommendation

    Although AJX’s share price has already seen considerable appreciation in recent months, we believe the Company has an exciting future as it moves into commercialisation.

    Timing of future revenue is the key uncertainty. We rate the stock a Speculative Buy.

     

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