Back to our series on little-known champions of the ASX’s micro-cap world. Here are two great examples of world-leading technology tapping into tailwinds.
1.Calix (CXL, $4.16)
Market capitalisation: $728 million
12-month total return: – 32.8%
3-year total return: 80.3% a year
Analysts’ consensus target price: $8.00 (Stock Doctor/Thomson Reuters, two analysts)
Calix (CXL)
Talk about being in the right place at the right time: Australian environmental technology company Calix is attracting plenty of attention for its suite of solutions for a range of environmental applications, including CO2 mitigation, sustainable mineral and chemical processing, advanced batteries, bio-technology and water treatment.
Calix is one of the Australian stock market’s ESG (environmental, social and governance) stars, and it’s no surprise that the stock has risen strongly in recent years, and has moved into the S&P/ASX 300 index. So, it’s not technically a micro-cap; more a small-cap. It must be stated that Calix is a loss-maker, and analysts don’t see that changing until financial-year FY25 at the earliest. Revenue estimates were also recently downgraded, but the company continues to kick goals.
Calix has a suite of business opportunities flowing from its family of 28 patents offering environmental solutions. The technology is built around a kiln – developed by Calix’s founder – that can extract substantial amounts of carbon dioxide from metals and minerals. The kiln produces materials with a porous honeycomb structure and extremely high surface area, delivering “active” materials enhanced chemical and/or bio-activity. Calix can adapt the kiln to work with various materials, but at present, it is the centrepiece of an ambitious plan to reduce the CO2 component in cement and lime manufacture.
From the first application treating wastewater – a business line that Calix is still in – the technology has been broadened to a range of uses, all of which have to be developed to scale. The most advanced use is for industrial decarbonisation: Calix has signed a deal with cement and lime giant Heidelberg Materials of Germany to capture the CO2 that comes from the manufacture of cement and lime. Calix’s technology is targeting reduction of about 90% in these emissions. Heidelberg Materials operates 149 cement plants across five continents: the global licence agreement that it signed with Calix in October will see the latter’s 93%-owned subsidiary, LEILAC (Low Emissions Intensity Lime And Cement), earn a royalty fee per tonne of CO2 avoided. It’s a big milestone for the LEILAC technology, and a first-of-a-kind agreement for the industry.
In October, Calix raised $60 million from investors to progress the LEILAC deal with Heidelberg, and also the second and third projects on its priority list. The second of these is to build a lithium salt demonstration processing plant in joint venture with lithium miner Pilbara Minerals, in a project called the Sustainable Lithium Chemical Concentration (SLiCC) project, to manufacture a low-carbon, high-quality lithium salt for global distribution using Calix’s patented technology. The joint venture, owned 55% by Pilbara Minerals and 45% Calix, will build a demonstration plant at Pilbara Minerals’ Pilgangoora Project in Western Australia.
The third is the company’s Zero Emissions Steel Technology (ZESTY) “green steel” process, which involves use of Calix’s core kiln technology to reduce iron ore to iron, for steelmaking, in a hydrogen atmosphere at temperatures considerably lower than those of a conventional blast furnace. The ZESTY process can be renewably powered and enables the use of green hydrogen as a reducing agent. The lime produced from the LEILAC technology could also be used in the the Zesty reactor, as could any extra carbon required for the final steel mix. This process will need to be scaled and tested: $2.5 million of the recent capital raising is earmarked for plant modifications, further trials and a FEED (front-end engineering design) final study for a 30,000-tonnes-a-year demonstration facility.
Calix also has a Biotech business based on manufacturing a safe, effective and environmentally friendly bioactive magnesium oxide, for crop protection and marine coatings; and an Advanced Batteries business developing high-performance batteries, particularly using lithium manganese oxide (LMO) cathode materials that reduce the energy required to run the battery, and help to minimise the battery’s CO2 footprint and cost.
The company is trying to do a lot of things, but appears to have settled on priorities. Calix says cement, lime, iron and steel provide the foundations of our societies and economies, and will be indispensable to ensuring global living standards continue to rise in a net-zero world; but they also account for an estimated 15% of global CO2 emissions, from some of the hardest-to-abate sectors of the global economy. The company says cement is the key ingredient in concrete, the most consumed substance on Earth, after water; it estimates that 1.37 billion tonnes of CO2 from cement will need to be captured and stored annually by 2050 to reach the world’s net-zero aims.
In FY22, Calix’s revenue was $18.5 million and gross profit was $5.2 million; and Calix had $25 million in cash on hand. The company recently became a victim of politics, announcing in October that certain Australian government programs from which it expected grant funding had been cancelled by the new government. That news stripped 20% from the share price, and I think that’s opened up compelling value for those investors comfortable in balancing the huge and growing ESG tailwinds behind Calix with the fact that its main technology deals are in various stages of commercialisation.
2. Straker Translations (STR, $1.27)
Market capitalisation: $86 million
12-month total return: –22.1%
3-year total return: –10.8% a year
Analysts’ consensus target price: $1.834 (Stock Doctor/Thomson Reuters, one analysts)
Straker Translations Ltd (STR)
I looked at Kiwi company Straker Translations in July 2020 (can we link to SR of 20 July 2020), when it was trading at 89 cents. The stock traded as high as $2.20, but the tech sell-off has brought it back to levels that look to be very attractive buying.
Straker provides translation services to customers in the Asia-Pacific region, Europe, the Middle East, Africa, and North America. The company’s services are built around its proprietary cloud-based artificial intelligence (AI)-powered RAY translation platform, which uses a combination of machine learning-based automated translation and a crowd-sourced pool of about 20,000 freelance translators around the world.
With this combination RAY is built to enable advanced hybrid human and machine translations: Straker’s model involves automating big volumes of translations while still using what it calls a “human overlay” – for example, a complex or specialist topic such as an aeronautical engineering manual will require an expert human to refine the translation. That’s where the human “crowd” comes in.
Straker enables the translation of documents, technical manuals, websites and e-commerce platforms for both large and small businesses across a range of industries. It also has a growing media business working on movies and TV. Straker says it is revolutionising a $50 billion-plus Industry through AI-driven innovation, its global reach and its growth platform.
What has been particularly impressive since then is the company’s growing relationship with IBM. In May 2020, Straker provided sub-titling for IBM’s premier annual conference, THINK, held virtually due to COVID-19. This required creating sub-titles for 6,000 minutes of video, equivalent to 920,000 words, within just ten days. In January 2021, Straker signed a strategic translations services agreement with IBM), under which it provides translation services in 55 languages to IBM Cloud Services, IBM Adaptive Translations Services and IBM Global Media Localisation.
Earlier this month, Straker and IBM extended the agreement by three years, underlining how impressed IBM has been. Already, IBM contributed $14.8 million in revenue in FY22 – more than one-quarter of total revenue – and this new agreement ensures Straker will continue to build on both the relationship and the multi-million-dollar revenue it generates
Straker employs 267 people in 14 offices in ten countries. In the year to March 2022, revenue surged by 78%, to NZ$55.9 million, boosted by strong organic growth and acquisitions, to come in ahead of guidance. At EBITDA (earnings before interest, tax, depreciation and amortisation) level – on an “adjusted” basis – the company said it made a profit of NZ$1.2 million for the second half of the financial year, giving it NZ$200,000 in EBITDA for the full year, compared to a NZ$200,000 million loss in the prior year. Straker has a healthy balance sheet, with cash of NZ$15.1 million and no debt following the A$25 million capital raising in the first quarter of FY22. The company has given guidance for FY23 of 20% growth in full-year revenues and profitability (again “adjusted”) at EBITDA level.
Again, this is a stock that is not yet profitable at the bottom line “net” level – net profit is not seen before FY25, at least – and in the current market environment, it has been punished, like many other stocks, for that. But the next few years present a huge opportunity for Straker to leverage its unique technology and data assets to become, in its words, “the industry eco-system provider of choice.” I think Straker Translations has a great chance to deliver on this.
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