Carbonxt (CG1) Rating: Buy | Risk: Medium | Price Target: $0.90...

Carbonxt (CG1)
Rating: Buy | Risk: Medium | Price Target: $0.90
1H18 in line with Expectations and Evidence that New Market Opportunities are Evolving Quickly
Event: CG1 has reported its 1H18 results in line with expectations and shed further light on new markets that are opening up for it. Shaw and Partners forecasts, TP and BUY.
Recommendation: CG1 listed on the ASX in January 2018 raising $10.0m to develop its growing activated carbon (AC) business which is taking market share in the U.S. with a unique product that removes mercury from fly ash produced in industrial processes such as coal fired power generation. We expect CG1 to move through cash break even in 2H18 and deliver strong sales and earnings growth for a number of years. CG1 is trading on a FY18 EV/sales of 3.5 and has a market capitalisation of $39m, neither of which are demanding next to other disruptive technology companies that are generating sales traction and moving towards profitability. We believe the discount at which CG1 trades to compcos reflects the short term risks we outlined in our initiation report. Over the next 12-24 months these issues will become increasingly less relevant, CG1’s sales pipeline, underpinned by 2- 3 year contracts, and the operational leverage identified should transform the company’s earnings profile (as reflected in our forecasts) and we expect it to trade up to a significantly higher capitalisation. BUY.