Alexium International Group Ltd


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Investment Memo: Alexium International Group Ltd (ASX:AJX) - LIVE

Opened: 08-Dec-2021

Shares Held at Open: 6,178,333

What does AJX do?

Alexium International (ASX: AJX) has developed and is selling advanced performance chemicals for cooling and fire resistance.

AJX commercialises its advanced performance chemicals by partnering with and selling its technology to manufacturers in a specific market (bedding, textiles, military uniforms etc).

AJX partners with manufacturers that then on-sell products to end customers with AJX’s thermal management or fire resistant chemicals applied.

What is the macro theme?

IP-backed technology with the potential to enter the lucrative US defence market.

Why did we invest in AJX?

Coliton Capital investment in AJX

Colinton Capital Partners is a well known private equity firm that specialises in taking a “hands on” approach to its investments. Colinton seeks to grow the companies it invests in from $100M's market caps to multiple billion dollar companies. We hope Colinton Capital can help AJX take this journey.

Established, revenue generating business

A stable revenue generating company to hedge against market volatility

Adaptable technology, primed for growth

With a strong sales pipeline and a strategic decision to engage with new markets, we think that AJX is primed for growth.

What do we expect AJX to deliver?

Objective #1: Cash-flow positive

AJX is currently earnings (EBITDA) positive. If AJX can fund its growth from revenue generating products, it will be less reliant on capital markets for funding.

  • Leveraging its product portfolio, which has significantly expanded over the past 3 years, is the key to AJX’s growth strategy in 1H FY23.
  • Improve market penetration of existing products.
  • Launch new products both inside and outside of the bedding market.

Objective #2: New Markets: Cooling Technology

AJX’s cooling technology, Eclipsys™, is foundational for the next phase of AJX’s growth into new markets.

  • Accelerating technology for higher-volume, lower-value bedding accessories such as pillows and mattress toppers. These Biocool and/or Eclipsys-branded products will be distributed nationwide in the US via leading department stores and online channels. Sales are expected to begin in 1H FY23.
  • Commercialisation of Eclipsys for body armor: 3 customers have completed testing and approved Eclipsys for incorporation in their body armor products. A further 30 prospective customers are evaluating Eclipsys for body armor. Aiming to achieve sales in 1H FY2023.
  • Progress on the application of Eclipsys to body armor adjacent markets, “Phase II markets”, including helmets, footwear, and clothing. Commercialisation not expected by the end of 1H FY23.
  • New products within new and existing platforms within the microclimate regulation product portfolio. Expected to have a commercial impact in CY2023.

Objective #3: New Markets: Flame Resistance Technology

We want to see the existing IP leveraged and AJX launch into different market segments.

  • (*An update for the Company’s FR product strategies is to be provided)

What could go wrong?

Sales risk

AJX sells directly to the manufacturer, not to the customer. This means that AJX will need to ensure that its manufacturing partners have a marketing strategy in place to commercialise products that use AJX’s technology. AJX’s could have the best product in the world, but if it is not marketed property it could hurt its top-line sales.

Technology risk

Although AJX has IP for its unique chemicals, it’s possible a competitor or larger chemical company enters the market with a similar or better product.

Funding risk

Although AJX is EBITDA positive, it does have ~US$2.5M in borrowings to pay down. A market crash combined with slow sales could impact its ability to pay down this debt.

What is our investment plan?

We have invested in AJX three separate times over the last 18 months and have built our long term position.

Our view is that the current share price doesn’t reflect the progressive value added to this business from quarter to quarter over the last year.

We plan to hold AJX as it demonstrates commercialisation traction across its six different market segments, something which we believe could see the share price re-rated at least 500% from our initial entry. At this point we will look to free carry and take some profit while maintaining a long term position for the next 2+ years.

Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 6,178,333 AJX shares at the time of publication. S3 Consortium Pty Ltd has been engaged by AJX to share our commentary and opinion on the progress of our investment in AJX over time.

Next Investors AJX Investment Milestones

✅ Initial Investment: @ 6c
✅ Top Slice
🔲 Free Carry
✅ Increased Position: @ 6c
🔲 Free Carry
Increased Position: @ 5.5c
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increase 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years

Our Past Commentary on Alexium International Group Ltd

Date Title
26-Feb-2022 $ 0.055 The War Begins, Cybersecurity, Food Security, Energy Independence and Precious Metals
05-Feb-2022 $ 0.062 The "Lesser Kown" Energy Transition Metals: Copper, Aluminium, Graphite, Helium, Rare Earths
11-Dec-2021 $ 0.070 ASX rests pre-Christmas as the market trades on very low volumes
08-Dec-2021 $ AJX Announces First Body Armour Contract - Breaks into New Market
25-Oct-2021 $ 0.090 Lockdown lifts, Two stocks to watch: MNB and ONE
19-Oct-2021 $ AJX posts best quarter yet - upward sales trend led by cooling tech. CEO says more to come.
18-Sep-2021 $ 0.078 Why uranium stocks are soaring, one good movie recommendation
28-Aug-2021 $ 0.078 Recap of the KNI IPO and share price run
27-Aug-2021 $ 0.072 AJX financials released early: the progress is in numbers & more announcements to come says CEO
14-Aug-2021 $ 0.079 Bookmark it, a new Pick of the Year is coming next week
12-Aug-2021 $ 0.077 AJX emerges from year-long quiet phase with first announcement in ages. More to come says CEO
31-Jul-2021 $ 0.067 Quarterly Reporting Season and other news from our portfolio stocks
30-Jul-2021 $ 0.063 We have tripled down on AJX - Here is our investment plan.
24-Jul-2021 $ 0.064 Why stocks go into "Quiet Execution Mode", how to spot a cap raise, stock "Confession Season"
23-Jul-2021 $ 0.050 Private Equity firm buys AJX shares on market - So we did too
05-Jun-2021 $ 0.052 What did our investmensts do this week? BPM, VN8, IVZ, and more...
27-Apr-2021 $ 0.050 Our Portfolio Performance from January 1st to March 31st 2021
29-Jan-2021 $ 0.056 Alexium Delivers 30% Increase in Cash Receipts in December Quarter
07-Jan-2021 $ 0.054 Our Stock Picks for 2021
05-Dec-2020 $ 0.073 This Week’s News Makers are Riding High
27-Nov-2020 $ 0.063 Cooling Technology for a Hot Market: Why we Invested in AJX
31-Jul-2020 $ Multiple Pathways to Success in Huge Addressable Market
27-Apr-2020 $ 0.060 AJX Partners with US$15B Giant to Commercialise its Flame Retardant Chemistries
15-Apr-2020 $ 0.050 Alexium Inks Exclusive Supply Agreement with Bedding Industry Leader
03-Mar-2020 $ 0.053 Alexium Enters High Growth Phase Targeting Major US Markets

New products planned as bedding market hit


Jun 27, 2022


Investment Memo: AJX 2022

Objective #2: New Markets Cooling Technology

Alexium International Group Limited (ASX: AJX) has outlined its planned H1 2023 commercial initiatives for microclimate regulation. These include new retail product releases under the Biocool and Eclipsys product lines for body armor, mattress, and top of bed applications.

While AJX’s focus has historically been on the bedding market, the evolution of its product portfolio sees the company primed to grow into Phase II markets —  body armor, helmet, and shoe markets.

Over the past three years, AJX has significantly expanded its product portfolio to create solutions for a wide array of microclimate regulation-related issues:

AJX plans to release new products both in its existing platforms and new platforms to round out its microclimate regulation product portfolio. Leveraging this product portfolio is the key to the company’s strategy for driving growth in 1H FY23.

The commercialisation of new microclimate regulation products and improving the market penetration of existing products has been critical to growing revenues.

News of these upcoming products releases is inline with our Objective #2: New Markets Cooling Technology for AJX, as per our 2022 Investment Memo.

AJX also provided an update on our #1 Objective - Cash Flow positive

AJX says that in H2 FY2022 global macroeconomic conditions have suppressed economic growth expectations and this is being seen across the US bedding/mattress market.

As such, AJX expects revenue to fall in H2 FY2022. However, having increased its market share over the past five months, AJX forecast a “significant rebound in bedding revenue once the economy recovers”.

To address lower consumer spending, AJX is accelerating the availability of its technology for higher-volume, lower-value bedding accessories such as pillows and mattress toppers. These Biocool and/or Eclipsys-branded products will be sold in US department stores and online beginning in 1H FY23.

Target Markets for Microclimate Regulation (Sphere size represents the addressable market size)
Target Markets for Microclimate Regulation (Sphere size represents the addressable market size)

Body armor demand, meanwhile, is largely insulated from general consumer spending. On that front, three customers have completed testing and approved Eclipsys for incorporation in their body armor products and another 30 prospective customers are now evaluating Eclipsys.

AJX Half yearly results


Feb 25, 2022

On Friday, AJX announced that it had increased its revenues by ~46.3% with gross margins consistent with 2H FY21 and from the same period last year's results at 40.1%.

AJX showed a US$1.9M loss in its income statement, but the actual cash outflow was much lower at ~$900k and we note that with the addition of the new BioCoolTM products and new customers AJX had increased its inventories by US$600k.

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