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Alexium's $1.10 Price Target Maintained By Sydney Broker

Alexium International Group (ASX:AJX, AX:AJX, OTC QX:AXXIY) remains a conviction pick of Sydney firm Foster Stockbroking, which has a BUY recommendation with a price target of $1.10 per share.

The broker noted that a recent site visit to the company's U.S. operations confirmed it was on track in 2015 to deliver commercialisation targets in just the first year of sales.

Shares in AJX last traded at $0.695. The following is an extract from its commentary.

Sales Pipeline experienced rapid growth in Q2

Over 40 Customers now active across various stages of proposal, sample tests, production scale up and final contract.

While we do not expect all 40 Customers to sign, the growth in Customers coming from inbound calls, networking, trade shows etc. has materially grown from our reported 10-15 Customers when we initiated.

Customers for AJX will appear along the textile supply chain that includes: the Brand owner, Cut & Sewers, Textile Finishers and Fabric Mills/Weavers.

The company estimates the immediate US market opportunity it has sized as suitable for the current FR textile products: Outdoor U$50 million; Automotive U$100 million; Home Furnishings U$100-200 million and Defense U$240 million.

This excludes other growth markets and markets outside of the U.S.

Management have indicated there are at least 1-2 Customers across each of the key sectors progressing to a decision in 2015 that can deliver U$5-10 million revenue per contract potential.

Together with smaller contract wins, only 50% conversion of these opportunities could underwrite our CY16 revenue forecast of $50 million.

EBITDA margins are healthy in the range of 30-50%.

Q3 on track to confirm a material home furnishing client

What could be the next major stock catalyst is news confirming the conversion of production scale up has now transferred to contracted revenue in the home furnishing sector.

As flagged to the market, this opportunity will start with monthly revenues in the U$200,000-300,000 range. This contract alone would underwrite the annual burn-rate of the company.

Should volume orders exceed this level in Q4, this deal will demonstrate potential to scale to U$5-10 million annualized sales.

Work on the DoD opportunity

Alexium is now working on to secure a break through U.S. military contract. The market is rightly focusing on this area as a boost to the company as it will provide both high profile success and recognition within the FR textile industry/competitors and material economic benefits to the shareholders.

The successful test work being undertaken under the FRACU program continues with the company selected for stage 2.

There are other direct efforts being undertaken for the potential for material contracts wins using a NyCo fabric that sit outside of the FRACU program and success is NOT dependent on the outcome of the FRACU program.

Quarterly Update

Separately, the company noted in its Quarterly Activities Report for the period to 30th June 2015 that it had received a combined $544,000 in cash and near-term commitments from commercial Customers and grantors.

This includes $325,000 (USD$268,000) in purchase orders for FR chemistry.

Nicholas Clark, chief executive officer said:

"This significant increase in 4Q financial activity clearly shows the penetration of Alexium's chemistries into the marketplace and is a clear indicator of the future trajectory of the company."

The company had cash of $11.6 million as at 30th June 2015.

Highlights for the quarter include:

- Increased potential addressable revenue for calendar year 2015 to more than $10 million - with more than 20 engaged Customers with a number ramping up to production, thus providing a platform for substantially higher 2016 revenues;

- Expanded into the Asian market to accommodate request of a leading US tent manufacturing customer to supply Alexiflam-SYN™ for its production facilities in Asia;

- Received Alexiflam™ purchase order and successfully scaled up new customer in the home furnishings market - later moved to full scale production as well as expanding use to additional product lines - potential ongoing annual revenue expected between US$5 million and US$15 million per annum;

- Successfully progressed commercial run trials with a supplier to the U.S. Department of Defense for fire retardant (NYSE:FR) solutions for advanced textiles comprising exotic materials for specific defense sector applications;

- Selected to proceed to second stage of development process for new FR uniforms with U.S. Natick Soldier Systems Centre;
- Received purchase order for FR formulations from a new customer manufacturing high quality textiles for the European luxury automotive sector - potential ongoing annual revenue opportunity of US$10 million to US$15 million per annum;

- Commenced negotiations for exclusive one-year license for the use of Alexiflam in commission finishing of decorative fabrics for the home furnishing sector;

- Received purchase order for initial shipment of Alexiflam formulations from a leading US provider of fabrics in the defense, home furnishings and industrial markets - ongoing orders expected;

- U.S. Brigadier USMC (ret) General Stephen Cheney appointed to board as non-executive director - CEO, Nicholas Clarks meets with key political members on military and commercial discussing FR products;

- Appointment of key new sales and product development staff; and

- Exhibition at world's largest textile show Techtextil in Frankfurt - ongoing commercial negotiations with a number of potential Customers across a range of sectors.

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