Shares in Value Logo
Product Review Img Vertical

Date : 22/09/2021

First Graphene

ASX :

FGR

Market Cap : $101.69 Million

Buy

52 Week Range : $0.125 - $0.330

Share Price : $0.18

FGR is looking to commercialise its low cost, high grade graphene. We recommend a "Buy"

Company Analysis

Graphene has many industrial benefits. Scientists have known about the potential of graphene for a while now, but it was not until 2004, that two professors Andre Geim and Kostya Novoselov were able to effectively extract graphene from graphite. This remarkable step in science earned them the Nobel Prize for Physics.

Graphene offers endless possibilities with such astounding properties and is predicted to be the material that would change the world. Scientists are hoping to develop stronger, more powerful batteries that are so small they could be sewn into your clothes. Graphene is a fantastic enhancer. This material has a unique molecular composition which could make it one of the smallest and most useful filters. Another breakthrough application could be the development of seawater filtering into drinking water with graphene.

This resource is currently expensive to precisely extract in large quantities. However, there is a company that may be able to solve this issue and that is First Graphene (ASX: FGR).


Source: Tradingview.com

FGR the world’s leading graphene company

First Graphene is the leading supplier of high-performing graphene products with a robust manufacturing platform and an established 100 tonne per year graphene production capacity. The company is developing its flagship product named PureGRAPH. It is a high-performing graphene that is easy to use and is enhancing the properties of products and materials across industries and applications worldwide. In our opinion, graphene has been often underrated by the market. We believe this material will revolutionise the future across industries and that FGR has all the necessary foundations to expand along with the massive growth in demand for this material. Hence, we have identified some key highlights that confirm that FGR is one of the upcoming hot stocks:

  1. A vertically integrated company: FGR is a vertically integrated company operating in three stages: mining and sourcing of raw material, production of graphene, and generating applications and intellectual properties.
  2. Big deposit of high-purity graphite available: FGR has confirmed that it has a secured supply of high-quality vein graphite at over 95 to 99% purity and has stockpiled five hundred tonnes of graphite, which should provide sufficient inventory for the next few years.
  3. Efficient production process: One of the key aspects we think that is undeniably necessary to the success of a company is how efficient its production process is. Actually, FGR has a well-organised production process. Thus, FGR’s production process outputs a high conversion rate of greater than 95%. This positions the business in the lowest-cost quartile and supports competitive pricing.
  4. FGR supplies a wide array of industrial applications: FGR’s clients are well-diversified. The material produced by the company is used in a few application areas such as elastomers, composites, fire retardant coatings, concrete and energy storage materials.
  5. Ongoing lucrative contracts: FGR currently has contracts for about 5.5 tonnes per annum with planarTech, Steel Blue and Aquatic Leisure Technologies as customers. Furthermore, the company expects to reach full utilisation in two years, while manufacturing breakeven is estimated at 6 tonnes annually.
  6. Business scalability: Another aspect that we like about FGR is its scalability, and that is a huge advantage to its competition. FGR has a current capacity of 100 tonnes per annum which can be easily scaled up with low capital investment due to the modular nature of its manufacturing technology. Capacity is projected to be added once utilisation reaches 60% to avoid pressure on existing facilities.
  7. Riding on the wave of green energy: FGR is an active member of the ISO standards committee for graphene registration. The company is also joining the Environmental Protection Agency (EPA), which registration is in progress.
  8. FGR has a product ready for commercialisation: FGR’s primary focus is on the commercialisation of the “PureGRAPH” range of products. The latest commercialisation achievement from the company is coming from its customer newGen, which increases PureGRAPH commitment to 4,800 kilograms. The agreement between newGen and FGR ensures a minimum phased commitment to FGR of 4,800 kilograms of PureGRAPH over a three-year term. This new agreement is worth between $1.2 to $1.44 million in revenue for FGR.
  9. Innovation at heart: The company is also working on expanding its portfolio of products and is actively performing research and development into alternative energy applications. FGR is a Tier 1 partner at the Graphene Engineering and Innovation Centre (GEIC) in Manchester in the United Kingdom.

The graphene revolution

To emphasise the importance of graphene, the European Union has committed to an equivalent of $1.62 billion to this revolutionary new material. What is the quality of graphene that drives excitement in the industrial and political sphere? Well, it is a material made of a single layer of carbon atoms; graphene has properties that make researchers drool. It is hundreds of times stronger than steel and a much better conductor than any of the materials now being used in electronics.

There is one very hot subject now, and it is about the future replacement of silicon in electronic circuits with graphene. But this material has a wider industrial application than you could imagine. Hence, when you think about it, it is two hundred times stronger than steel of the same thickness. It is highly flexible and can stretch up to 20% of its length. Graphene is also fully impermeable even to helium gas. Moreover, this material is one million times more conductive to electricity than copper. There are a lot more properties that give graphene an edge over other materials.

Source: FGR

Graphene’s properties have supported its use in industries ranging from aerospace to water filtration. Demand for graphene is expected to expand at a compounded annual growth rate of ~38% to $1.49 billion by 2027. Currently, the graphene industry is trying to overcome manufacturing, technological and cost barriers. So far, we see in FGR high capabilities to tackle these challenges as a vertically integrated company with an efficient production process in place.

Graphene’s unique properties are the primary reason for increasing demand for the material. Graphene has various formulations such as powders, nanoplatelets, foams, dispersions, oxides, and nano-films and each of these formulations have different applications. Graphene has found relevance in industries such as aerospace, composites, electronics, biomedical technology, and energy.

FY22 – FY25 outlook: FGE seeks to position itself in the lowest-cost quartile of global graphene suppliers

The graphene industry is currently at a nascent stage and most of the product is currently used for research and development activities. However, the industry is seeing rapid growth in commercialisation and should reach around $1.49 billion in the next five-year period. The market size is estimated at $109 million, suggesting the industry could register a CAGR superior to 38% over the upcoming five years. Graphene has limited applications today and is primarily used in batteries, supercapacitors, anodes, and loudspeakers. However, by the second half of FY24, graphene’s application areas are expected to widen to aerospace, water desalination and automotive. Support from governments, private investments and major markets is expected to fuel the growth of graphene in the near future. The rapid increase in the number of patents filed for graphene-based products provides a good indication of efforts to commercialise the industry.

FGR plans to position itself in the lowest-cost quartile of the global graphene suppliers. We are strongly convinced that the company will be able to dominate the graphene market by FY25. Hence, FGR holds supplies of high-grade graphite and has the manufacturing capability to convert it into the highest-quality graphene.

FGR is actively working toward the commercialisation of its products by developing applications in various fields such as energy storage devices, coatings, and polymers. FGR’s aim is to vertically integrate itself in the value chain of graphene production from reliable sourcing of raw material to the development of applications for the industry along with relevant intellectual properties for licensing and sales. We appreciate the fact that the business has a very clear strategic roadmap in place. Since FY20, sales in tonnage terms were concentrated on the fields of polymer strengthening and wear resistance. For applications in composites and concrete, the company is at the stage of qualifying trials and is progressing toward the development of supercapacitor and battery materials.

Timeline Description automatically generated

Source: FGR: FY21 rapid progress and accomplishments

With a supporting nascent market fuelled by new graphene industrial applications and solid production capabilities, we believe that FGR could achieve operating breakeven levels before FY25. Thus, current customers have contracted for 5.5 tonnes per annum. Meanwhile, planarTech sourced two hundred kilograms in CY20 and is expected to increase sourcing to one tonne annually onward FY22. The manufacturing break even for the Henderson facility is 6 tonnes per annum, based on production costs of 10 tonnes annually.

Onward FY22, FGR is focusing on two main business priorities:

  1. The commercialisation of its flagship graphene range of product “PureGRAPH”: The company has a commercial production capacity in place and is focusing on building its sales book by engaging customers. It is actively working on developing and deriving the benefits from the addition of graphene in various fields of application while designing additive methodologies for effective use of graphene for its prospects and customer’s product range.
  2. Research and development for the application of graphene applied to the renewable energy domain: FGR is working on improving the efficiency of various alternative energy applications, such as solar power collection devices and advanced supercapacitor materials. In collaboration with universities, it is working to develop technologies for alternatives to spheroid graphite in batteries and a new process for manufacturing green hydrogen.

More importantly, FGR has a clear sales focus on the following immediate sectors which comprise, (1) rubbers and elastomers, (2) cement and concrete, (3) composites and plastics, (4) coatings, and (5) energy storage.

Revenue forecasted to conservatively reach $1.81 million by FY24

As the demand for graphene is primarily driven by the development of renewable energy, government support, and the evolution of electronics, we have conservatively estimated FGR’s revenue to grow by a CAGR of 11.7% from currently $1.3 million to $1.81 million by FY24. This estimation is based on the expected expansion of renewable energy technology which will be the primary user of graphene. The electricity produced around the world from renewables is anticipated to reach 30% by the end of FY23. On top of that, the electronics market is the fastest-growing area for graphene technology. It accounted for around 36% of the graphene market globally in 2019 and is expected to exhibit significant growth in the future. Growth is primarily expected to be driven by use in semiconductors, transistors, capacitors, and sensors.

A picture containing diagram Description automatically generated

One of the strengths of the company is the scalability of its business. Hence, this is reflected by stable operating expenses which are expected to remain flat below $7 million onward FY22. Furthermore, we have forecasted the expense to cash ratio to decline to just 28% by FY24 from 106% (FY21). In other words, the company has a comfortable cash position. This proves that FGR is very capable to scale up its business. At the current cash burn rate, we believe the company may not necessarily require raising any additional funds for the next five years.

Recommendation

FGR plans to lead the lowest-cost quartile of the global graphene suppliers. We are convinced that the company will be able to dominate the graphene market by FY25. FGR holds supplies of high-grade graphite and has the manufacturing capability to convert it into the highest-quality graphene. And that with production in bulk quantities at the lowest cost. FGR is actively working toward the commercialisation of its products by developing applications in various fields such as energy storage devices, coatings, and polymers. FGR’s aim is to implement vertical integration in the value chain of graphene production. We also like the fact that the company has a very clear strategic roadmap in place. With a graphene market expanding at a CAGR of ~38% for the next five years, and a consistent operating capability, we believe that FGR could achieve operating breakeven levels before FY25. Therefore, we recommend long-term investors to “Buy”.

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY