18 November 2019
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A stock that’s showing some spark and a story about the only ASX-listed battery producer.

A tale of two stocks

Tim Boreham
19 October 2018

1. Rectifier Technologies (RFT) 2.9c

Rectifier isn’t building more charging facilities as such but it is playing a low-key role in solving a related problem: the time it takes to charge a vehicle.

Rather like a dead-flat battery, the previous sub 1c zombie stock has sparked back to life, after a series of contracts with Tritium Pty Ltd, which is rolling out fast charging stations on German autobahns for a consortium of car makers called Ionity.

A key investor in the unlisted Brisbane based Tritium is energy entrepreneur Trevor St Baker, who as the part owner of a coal mine has his position nicely hedged. Billed as the most powerful in the world, the 475 kilowatt Tritium stations will charge a typical electric vehicle with 150 kilometres of range within five minutes.

In contrast, the most powerful charger currently used by Tesla is 120KW, with a charging time of about one hour.

Rectifier doesn’t make the fast chargers but it beat several offshore rivals to provide the rectifiers, gee-gaws that convert alternating current (AC) into direct current (DC). The devices are known as such because they ‘straighten’ the currents to run in only one direction.

As with a laptop or a phone, cars can’t be plugged into a socket without a DC conversion.

Established in 2001, Rectifier provides a range of electrical devices, for use in applications including submarines and drones. But the unfolding EV market is re-shaping its once-battered fortunes.

In June, Rectifier got a $6.6m binding order from Tritium for its modular units and at the time told shareholders to expect more orders. Sure enough, in early October Tritium lobbed a further order for another $US3.4m of the gadgets. 

CEO, Yanbin Wang, expects demand for fast chargers from both the big charging stations and the home market. 

 “We have not started popular sales but we believe more and more people will go this way,” he says.

Rectifier started in 1980 by a group of engineers based on automatic DC switches for telephone exchanges. 

Supported by contracts from the then Telecom Australia, Rectifier had a few good years but, like Nokia, didn’t invest in the next big thing.

The company listed in 1994 but by 2010 the stock traded at the lowest allowable value of 0.1c.

Wang got involved in 2005 after the company went to China – where the company had a good reputation -- in a desperate search for new investors. A Chinese entity, Pudu, took a 15% stake and remains Rectifier’s biggest shareholder.

“But in 2010 the company still didn’t have enough money for salaries,” Wang says. “It had borrowed from every shareholder and director and had no plans to pay them back.”

Unusually for a small tech play, Rectifier is profitable, having generated a $612,000 surplus in the year to June 30 2018, on revenue of $8m.

 “We are only a few months in (to the 2018-19 year) but we are already seeing an increase in sales, all from EV charging,” Wang says.

Redflow (RFX) 8.3c

With a $60m market capitalisation, the heavy-duty battery maker can be viewed as the poor man’s Tesla, which still bears a $60 billion worth, in spite of the dope inhaling Elon Musk’s missteps in recent times.

Despite the hype around renewables and stored energy, Redflow is the only ASX-listed battery producer * with investors preferring to punt on the raw ingredients, such as vanadium and lithium.

As a result, Redflow shares are trading near record lows, despite opening a new factory in Thailand that will ramp up output and improve efficiencies.

One reason is that in the tech sphere, punters prefer blue sky over the drudgery of commercialisation.

Another is that having been around since 2010 and listed since 2015, Redflow is not a shiny new thing. “We have been going for a wee while,” says CEO Tim Harris. “A couple of times we got a little ahead of reality but … we are in the right place at the right time.”

Redflow has also done what it said it would do, in its quest to perfect a better battery for tough operating conditions.

Called zinc bromide flow batteries, Redflow’s units can work in 50 degree temperatures and are guaranteed to retain 100% of their discharge capacity (10 kilowatt hours) for 10 years.

 Unlike lithium batteries, there’s no risk of them catching on fire and they thrive on long usage periods of more than four hours. Another advantage is that because the batteries are heavier, they don’t contain inherently valuable ingredients and they’re not nicked as much as the lithium-ion ones.

 “Think of lithium-ion as the sprinter, we are the marathon runner,” Harris says. “Our batteries actually like hard work.”

Rather than focusing on the consumer market – a la Tesla Walls – Redflow targets specialist uses, such as telco towers (to replace lead acid batteries) and off grid applications, such as mining and wind and solar farms.

In the company’s biggest order to date, worth $800,000, New Zealand’s Hitech Solutions committed to use the batteries for a new digital network in Fiji.

The batteries are also used to provide peak capacity for Adelaide’s heritage listed Darling Building.

Having previously manufactured in Mexico, Redflow recently cut the ribbon at its new factory, Chinburi, a free-trade zone 110 km south west of Bangkok.

As well as saving on costs – Mexico isn’t quite the low cost regime it used to be – the Thai migration takes Redflow closer to its target markets in the Asia Pacific and southern Africa.

“It gave us a little bit more control over the supply chain,” Harris says, adding the company is delighted with the quality of the batteries.

The Thai factory churned out 78 units in August, with a forecast uptick to 150 in December. Depending on demand, the factory can produce up to 250 a month.

Redflow generated a modest $1.775m of revenue in the 2017-18 year (up 29%), for a loss of close to $12m (down 7%).

Given the batteries sell for around $US8,000 each, producing at a clip of 250 a month. That’s a decent step up – although not enough to render the company cash flow positive after R&D costs. 

In a changing of the guard, 15% shareholder “technology evangelist” and former NBN Co director, Simon Hackett, will step down from the board at the next AGM.

The Internode founder remains in a new role of “systems integration architect” so his talents are not lost to the company.

Redflow raised $18.1m of equity in early 2018 and $14.5m in mid 2017. As at June 30, the company had $17.7m in the bank.

Harris, meanwhile, is confident the shares will receive the jump start that Redflow shares need.

 “As with the relaunch of any major commercial product, it will take some time to gain traction but we are pleased with progress to date.”

*With a similar market cap, Novonix (NVX, 54c) comes close. As well as owning a graphite mine, the company sells battery testing equipment and is developing graphite based anode materials.

Tim Boreham edits The New Criterion Tim@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

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