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Alexium International Group Ltd: A promising small-cap?

Alexium International Group Ltd (ASX: AJX) is a small-cap company that designs and produces chemical treatments for textiles and sells them worldwide. It’s got patents and patent applications on 25 different chemical solutions and has been growing rapidly.

Here are some key stats:

  • $160 million market capitalisation
  • ~A$16m in revenues (last 9 months)
  • Burning $5m cash per quarter but expected to hit break-even in current quarter
  • $6.4m cash at bank at 31 March 2017
  • Proprietary patents for flame-retardant equipment plus solutions for moisture wicking, antimicrobial, water repellent solutions, and more

Management states they now earn $2 million in recurring revenues each month from existing customers, which suggests the company is priced at about 7x annual sales. The total target market across Alexium’s products is estimated in multiple billions and includes most textiles (bedding fabric, sportswear, uniforms, etc) and a variety of other surfaces.

With a low-cost method of application and the recent strong growth in sales, the company has been able to achieve benefits of scale and appears close to a tipping point where it can become cash flow positive and start doing profitable business. Sales are reportedly growing via both winning new customers and increasing sales to current customers.

The company is an interesting prospect but my chief concern is over its cash flows. Depending on sales growth, the company really only has enough cash to continue operating for the current quarter, and it’s had to borrow ~$7 million at 15% per annum to pay for working capital requirements.

While this could be a positive, in that debt can be paid down and is not dilutive like a capital raising, any sort of unforeseen issue could see Alexium having to raise capital anyway. As a result I’ll remain on the sideline for the time being.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.