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  • RedFlow: Broker Upgrades Recommendation To "Add" 0 comments
    Feb 19, 2014 1:23 AM

    RedFlow (ASX:RFX) has received an investment upgrade from Morgans with the broker making an "add" recommendation from hold. Its valuation remains unchanged at A$0.26 but it has reduced the discount and set a target price at $0.20 a share.

    Morgans sees RedFlow's recent appointment of Flextronics as its contract manufacturing partner as a major milestone.

    This indicates that RedFlow's zinc-bromine flowing electrolyte battery module (ZBM) is ready for commercial production.

    Morgans also noted that 6-12 months will mark the turning point for RFX shares and that successfully outsourcing coupled with progressively larger orders from System Integrator (Raytheon and/or Emerson) will drive the share price higher.

    According to Morgans, the key drivers are:

    Manufacturing milestone

    With multinational Flextronics appointed as its contract manufacturing partner, RFX will able to scale up and manufacture higher quality product. Flextronics operates 100 manufacturing facilities across 30 countries and has a market capitalisation of US$5bn and has annual revenue in excess of S$25bn.

    Flextronics is a leader in its field of contract manufacturing and its decision to get involved with a small Brisbane company like RFX signals the energy storage market is highly significant and RFX's product has big potential.

    Upcoming milestone

    Over the next 6-12 months RFX will progressively outsource the manufacturing of its ZBM to Flextronics. In parallel RFX will look to secure firm product orders from SI partners. We would expect orders to initially be small but increase in size as SI's gain confidence. Securing firm SI orders is likely to be the key focus for management.

    Add recommendation

    According to the broker, RFX has now overcome most of the major product related obstacles, and is now back in a strong position. Securing the first round of orders from SI's will be the next major catalyst for the stock. The stock has been upgraded to Add from Hold, while valuation remains unchanged.

    A previously applied discount of 60% to reflect turnaround risk has been reduced to 25% to reflect potential funding requirements.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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