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Why shares of Alexium International Group Ltd are down today

Shares in chemical development company Alexium International Group Ltd (ASX: AJX) are down 5.26% in morning trade to 36 cents following an institutional placement that raised $12 million at 35 cents per share.

The issue price represents a 7.9% discount to last Wednesday’s closing price of 38 cents before the company went into a trading halt.

The placement was oversubscribed by institutional investors and is intended to strengthen the company’s balance sheet ahead of a projected increase in production capacity and new product trial requirements in the military and bedding sectors to satisfy rising demand following the recent banning of organohalogen fire retardants in consumer products.

The company will also use the new funds to expand its product development team to support new and existing market opportunities and invest in high sensitivity analysis equipment, product testing, and intellectual property protection.

Alexium shareholders will also be given the opportunity to participate in this capital raising via a share purchase plan at the same price as the institutional placement raising an additional $3 million.

Outlook

Management also provided an update that its revised margin focus strategy is improving with gross margins projected to be between 27%-28% for the December quarter. The company has also won 4 new bedding customers, a new home textiles customer and has been selected as a suppler on a new line of mattresses for 2018 with an existing customer.

Alexium is at the forefront of global flame retardant technology. The company is a small cap stock with a market capitalisation of approximately $110 million that designs and produces chemical solutions for textiles serving the defence industry and consumer markets globally.

In FY17, the company impressively grew revenue by 595% to $24 million but still lost $12.1 million. With the company’s focus on improving margins, optimising its customer mix, increasing market share in current markets and expansions into new markets it should see an improvement financially.

Alexium has a lot of potential with its technologies attempting to address a market opportunity of over US$3 billion, and is a stock investors should keep an eye on.

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Motley Fool Contributor Tim Katavic has no financial interest in any company 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.