Analyst Andrew Hood says CEMATRIX Corporation (TSXV:CVX) is the best-in-class North American leader in an underdeveloped industry
Capital Ideas Media | July 10, 2020 | SmallCapPower: Capital Ideas Media Publisher Mark Bunting wrote: How many times have you been driving on a pot hole-riddled street and said to yourself, “There’s got to be a better way.”
(Originally published on Capital Ideas Media on May 19, 2020)
Well, there is.
[Please click here to get immediate access to curated research in the weekly Capital Ideas Digest with our free 30-Day Trial.]
CEMATRIX Corporation (TSXV:CVX) is a maker of so-called cellular concrete that vows to lead the way supplying its proprietary material to build roads, tunnels and bridges that last unlike most concrete that expands and contracts with the weather and often turns to rubble over time.
M Partners has initiated coverage on Cematrix with a “buy’ rating and a price target of $1.20 per share, which implies a gain of more than 170% from the current price.
Cematrix has a market cap of about $25 million.
Analyst Andrew Hood says the company is the best-in-class North American leader in an underdeveloped industry.
Cematrix is based in Calgary, Alberta, and has been around for about 20 years. It’s main product is CEMATRIX Cellular Concrete (CCC).
Here’s the company’s description:
CCC is a construction material consisting of Portland Cement, water, specialized pre-formed foaming agent, and compressed air.
Benefits of cellular concrete include:
- Insulating (can contain up to 80% air)
- High strength compared to other lightweight fills or insulations,
- Highly flowable,
- Energy absorbing,
- Excellent freeze-thaw resistance, and
- Closed-cell structure with low permeability.
Cematrix also has a marketing partnership with Lafarge Canada.
Here’s some commentary on Cematrix from M Partners initiation report:
“Both organically and inorganically, CVX has expanded its proprietary technology and formulations, density offerings, geographic footprint and management expertise in order to satisfy the widest array of customer needs.
Its competitive advantages place the company in an enviable position as the market for cellular concrete expands on the back of its superior attributes vs. alternatives, including lower costs, faster construction times, superior strength, more environmentally friendly, insulation properties, and more.”
CVX has what Hood considers to be a “massive” backlog of nearly $79 million, with as much as $45 million of that revenue expected this year.
He thinks Cematrix can grab about a 30 per cent share of a $275 million addressable market in the next few years.
“In wildly uncertain times, CVX is positioned in the recession-resistant infrastructure markets which are likely to be the beneficiary of government stimulus in the near-term.
Both the U.S. and Canada have historically used infrastructure investments to keep the economy running, and both countries have aging infrastructure which require higher levels of investment.”
Cematrix made a couple of significant acquisitions in the last two years buying MixOnSite USA and Pacific International Grout Co.
Those deals helped the company to record revenue growth in 2019 to nearly $22.6 million compared to $17.6 million the year before.
M Partners is estimating fiscal 2020 revenue and EBITDA for CVX of $40 million and $6.3 million, respectively, and $50 million and $8.5 million in 2021.
The CEO of Cematrix, Jeff Kendrick, said the company had experienced “very little” impact from COVID-19 and that government spending on infrastructure “should have a significant positive impact on our business.”
To read our full disclosure, please click on the button below: