A sweet ride
Founded in 2007, Carbon Revolution Limited (ASX:CBR) is a world recognised leader in the commercialisation and supply of lightweight carbon fibre wheels. Operating out of Geelong, Victoria, the company has to date delivered around 40,000 wheel sets to the market under OEM agreements with Ford, Ferrari & Renault.
Interest in the CBR’s offerings has been growing strongly since listing in late 2019. The company currently has 11 programs underway with five global OEMs and has secured formal agreements to initiate detailed design and engineering on four new Original Equipment Manufacturer (OEM) programs, with a significant amount of planned work with electric vehicles. The business has also stated that a further ten unannounced programs are currently under formal agreements.
To respond to the strong growth in demand for their products the business announced a capital raising of $95m in April at $1.60 per share by way of an institutional placement and entitlement offer to shareholders to fund the development of Phase 1 of Mega Line which should approximately double CBR’s total manufacturing capacity to 155,000 wheels p.a. whilst also significantly driving down labour hours required and wheel production costs. At the time the fundraising was at a 27.5% discount to the last traded price of CBR at $2.20 per share.
Shortly after full completion of the capital raising, CBR announced that one of its major customers has been forced to idle production of vehicles due to a global shortage of semi-conductor chips in the automotive supply chain impacting on the near-term delivery of 1,800 wheels for FY21. Whilst this is likely a short-term impact on CBR with production expected to re-commence in late June, CBR shares were nonetheless hit hard in recent weeks falling a further 20% and now trading around $1.25.
We see an excellent opportunity in this position currently and expect that some stock overhang from the recent capital raising has exaggerated the downside momentum in the stock creating a buying opportunity in the stock. Given the stock is still maturing, it must be considered a higher risk, however, the business is well funded and demand for their leading-edge product is only increasing. As the manufacture of electric vehicles globally accelerates we see CBR being well placed to benefit as manufacturers of high-end vehicles favour lightweight wheel-sets.
Learn more about Carbon Revolution here.
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