MoneyTalks is Stockhead\u2019s regular drill down into the stocks professional investors are looking at. We tap our extensive list of experts for insight on their top picks right now.<\/p>\n
In this edition, we hear from Shaw & Partners\u2019 senior wealth adviser and founding adviser Ben Morrissey.<\/p>\n
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And now, for something completely different\u00a0relevant\u2013 <\/em>activated carbon.<\/p>\n What\u2019s that, then? Also sometimes called activated charcoal, it\u2019s an extremely porous form of heavily processed, carbon (derived from coal in this instance) and used to filter various harmful contaminants from water and air, among other uses.<\/p>\n And it happens to be the main game of Carbonxt Group (ASX:CG1)<\/strong><\/a> \u2013 a stock Morrissey (and Shaw and Partners) has been into for quite some time.<\/p>\n Morrissey has kept faith in the company through a rocky share-price ride and firmly believes it\u2019s now on the cusp of its biggest stage of growth.<\/p>\n Why? Read on\u2026<\/p>\n \u00a0<\/p>\n There are a few factors that brought Carbonxt onto the fundie\u2019s radar initially.<\/p>\n It\u2019s an Aussie company with superior tech, focused on the \u201ckey addressable\u201d US market in a sector that if still isn\u2019t\u00a0 on enough radars yet, needs to be, and very likely will be before long.<\/p>\n Morrissey notes that it was an Environmental Protection Agency (EPA) legislation first proposed in the Obama government era that, for him, helped him to see Carbonxt\u2019s full potential.<\/p>\n That EPA legislation, among others now in play, sought to reduce the levels of mercury by more than 90% in coal-fired power stations.<\/p>\n \u201cI thought, well here\u2019s an obvious opportunity,\u201d says Morrissey. \u201cBecause if you\u2019ve got a company with technology that is obviously better than its peers, that can actually do that, then demand will go through the roof and the thing will explode.\u201d<\/p>\n \u00a0<\/p>\n We\u2019ll get to why Carbonxt\u2019s tech is superior in a minute. But what happened next, however, was a classic example of the power of US lobbying, which saw most of its power stations granted extensions upon extensions, pushing out their need to meet those EPA requirements by at least five years, says the Shaw And Partners senior wealth adviser.<\/p>\n \u201cThat was hard,\u201d notes Morrissey, \u201cbecause the company was small and the US power stations just rested on using the larger competitors with inferior products \u2013 all stateside behemoths.<\/p>\n \u201cBut my initial interest was in the space itself and the technological advancement that Carbonxt had \u2013 and still has by the way \u2013 over its peers. But as a result of the power of the US customers at the time, it really didn\u2019t make much headway for some years.\u201d<\/p>\n \u00a0<\/p>\n There are two factors to note with Carbonxt\u2019s activated product(s).<\/p>\n Firstly, it is differentiated in the market as a magnetised<\/em> activated carbon, which Morrissey notes was developed in house, while all the bigger competitors in the US use brominated<\/em> activated carbon.<\/p>\n Per Carbonxt\u2019s website:<\/p>\n \u201cIt took probably two years for the phone to ring at Carbonxt,\u201d says Morrissey.<\/p>\n \u201cAnd the reason it started ringing is because of the bromination of the activated carbon that US power stations were using from competitors \u2013 it corroded the hell out of their facilities. The Carbonxt technology was always better. There\u2019s never any doubt about it.\u201d<\/p>\n The other thing to note is that, while the magnetised activated product was originally solely powder based and developed for the power stations, Carbonxt has since developed it in granular form as well, which has, so we\u2019ve read, certain advantages over powdered form, such as a longer, round-the-clock continuity in providing a barrier against cyanotoxins and various contaminants.<\/p>\n Again, this is another factor that makes Carbonxt\u2019s product unique \u2013 particularly in the US market.<\/p>\n Have US competitors then since moved to imitate and switch to magentised and granular activated carbon?<\/p>\n \u201cI don\u2019t think they have, no,\u201d replied Morrissey.<\/p>\n \u201cYes, it\u2019s a better product, but when you look at the volumes that Carbonxt currently produces compared to bigger companies over there, there hasn\u2019t been any need for technological advancement by the competitors.<\/p>\n \u201cUltimately, I mean, what I expected to be perfectly honest was, given Carbonxt has the technological advancement, one of its larger competitors would just swoop in and take it over.\u201d<\/p>\n That obviously hasn\u2019t happened, but what has, and what lines up as particularly bullish for the company, is this\u2026<\/p>\n \u00a0<\/p>\n The real game changer for Carbonxt as a company, says Morrissey, and \u201cwhere the real excitement will come from over the next couple of years\u201d is its joint venture partnership with a firm called Kentucky Carbon Processing (KCP), which was first announced just under a year ago.<\/p>\n Essentially, the aim here is for KCP to help CG1 achieve expansion into higher value end markets with improved margins.<\/p>\n Those higher value end market, clarifies Morrissey, includes \u201cgroundwater mediation and drinking water filtration\u201d and we\u2019re talking the targeting of some potentially big, state-based contracts in the very near future.<\/p>\n The cost of producing granulised activated carbon pellets is expected to decrease significantly under the JV, too, supporting Carbonxt\u2019s aim of increased margin growth.<\/p>\n And to that end, a third US-based production facility is being commissioned.<\/p>\n Per info we gleaned from a CG1 investor presentation this week, the Inez Power Activated Carbon Plant will produce both pelletised and granular activated carbon from coal-based raw materials, and it will be the only coal-based pellet producer in North America.<\/p>\n \u201cThe high-quality raw materials will expand the addressable market to include industrial water treatment applications, including entry into the PFAS \u2018forever chemicals\u2019 removal market,\u201d noted the company in its presentation.<\/p>\n And that\u2019s a market supported by recent US EPA legislation that requires the removal of these so-called forever chemicals, which are, disturbingly, said to be found in a wide range of processed foods and food packaging among other things, and have been linked to a wide range of health risks for humans and animals.<\/p>\n Crucially, production is earmarked to double to 20,000 tonnes per year from the current 10,000 tonne per annum output.<\/p>\n It\u2019s this, combined with best-in-class products\/tech and America\u2019s customer-demand-driving environmental regulatory policies, that has Morrissey feeling particularly bullish about Carbonxt.<\/p>\n \u201cThe KCP JV is really the game-changer for the company. When you talk about financial metrics, the margins that are achievable out of KCP are significant. And because of the market they\u2019re targeting, and because of the technological advancement of the actual product itself, it all sees a massive uplift in the sort of revenue that the JV can collect on a tonnage basis.\u201d<\/p>\n Carbonxt\u2019s share of the joint venture is 35.5%, by the way but will move to 50% after US$4.5m of final milestone payments are in the bag (for a US$10m total investment).<\/p>\n \u00a0<\/p>\n Right then, does Morrissey give CG1 a \u2018buy\u2019 rating for short and\/or long term thinking?<\/p>\n While he says he avoids going down that deterministic route on individual stock ratings he does say this:<\/p>\n \u201cThe timing for CG1 is at a really interesting stage, because it\u2019s really at that company-making phase with the KCP JV.<\/p>\n \u201cOnce some product testing has completed, I would expect to see, over the next three or four months, a pretty quick escalation of contracts from KCP.<\/p>\n \u201cAlso, you\u2019d expect that 20,000 tonne per annum capacity to then go to 40,000 and so on. They\u2019ve got access to extremely good clean raw materials \u2013 coal \u2013 out of the KCP processing plant, and really, the upside is limitless at this stage.<\/p>\n \u201cAs a business, as a sector as an opportunity, CG1 meets almost every criteria you want.<\/p>\n \u201cIt\u2019s got the industry team. It\u2019s got the scalability, tech, it\u2019s got the the market size, tick\u2026 it\u2019s got everything that you\u2019d want going forward.<\/p>\n \u201cThey just need to get to profitability, eliminate some debt \u2013 once contracts are announced \u2013 then away they go. And at that stage, I think its slow-moving share price will escalate really, really quickly.\u201d<\/p>\n \u00a0<\/p>\n \ufeff<\/span>\ufeff<\/span>\ufeff<\/span><\/span>\u00a0<\/p>\n The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.<\/p>\n Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/p>\n <\/span><\/p>\n The post MoneyTalks: There\u2019s something in the water for Carbonxt, and it could be \u2018company making\u2019<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"CG1\u2019s investment thesis was \u2018obvious\u2019<\/h2>\n
But\u2026 US lobbying proved to be a roadblock<\/h2>\n
CG1\u2019s tech differentiator<\/h2>\n
The JV with Kentucky Carbon Processing (KCP)<\/h2>\n
All about timing<\/h2>\n
CG1 share price today<\/h2>\n\n