Company Overview: Eden Innovations Limited (ASX: EDE) is involved in clean energy operations in Australia. The company’s key focus includes producing and selling high-performance concrete admixture (EdenCrete and retrofit dual-fuel technology - OptiBlend). The company’s reporting segments include Eden Innovations (India) Pvt Ltd and Eden Innovations LLC (US Subsidiary).

­­­­­­EDE Details

Material Business Updates

Equity Raising Event: As announced on 29 October 2021, EDE agreed to make equity placements for the total shortfall of $1,507,235.99 from the latest non-renounceable Rights Issue with an additional placement of $1.1 million. The placements are made to sophisticated investors and institutional clients to raise circa $2.607 million.

Growth Potential Sought with Rising Demand: As announced on 22 October 2022, EDE, for the past few years, has received several enquiries from companies across the globe, interested in the potential benefits of EDE’s products as concerns over global climate and CO₂ surges.

US OptiBlend® Sales Representation Expansion: As announced on 4 October 2021, Eden Innovations LLC appointed Davidson Sales Company (DSC) to fuel sales volume for OptiBlend®. The engagement with DSC has expanded EDE’s OptiBlend® sales representatives footprint in the US market, following the appointment of Power Source Midwest.

Historical Financial Trend:

EDE illustrated sustainable top-line growth while keeping the value proposition intact. The Operating revenues have been growing since FY17 with a consistent increase in gross profits. As a result, operating revenues grew at a 36.3% CAGR (FY17 – FY21).

Figure 1: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

First Quarter FY22 Performance:

Figure 2: US EdenCrete® Market: Major repair project, jointly funded by Georgia Department of Transportation (GDOT) and the US Federal Highway Administration (FHWA), initially forecasted to require 21,400 gallons of EdenCrete®. EDE installed 6,100 gallons and delivered a 5,000-gallon EdenCrete® storage tank in Q1FY22 and was the largest supplier in Georgia.

OptiBlend® Segment Developments: OptiBlend® reported A$998,358 in sales, up by 187% PcP. EDE appointed Missouri-based Power Source Midwest, Inc (operating in 10 US States) and Florida-based Davidson Sales Company (operating across southeast US) to cater to increased demand.

Figure 2: Quarterly Performance

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY21 Performance:

Figure 3: Annual Performance Snapshot

Top 10 Shareholders:

The top 10 shareholders together form ~37.11% of the total shareholding. Noble Energy Pty. Ltd. and Solomon (Gregory Howard) hold a company’s maximum stake at ~­­­29.64% and ~2.13%, respectively.

Figure 4: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

EDE’s top-line surged significantly amidst increased usage of EdenCrete® in shotcrete applications in Georgia. Growth in gross profit stand decent and falls in line with revenue growth. The current ratio has contracted to controlled levels, and stringent control over working capital has delivered a contracting cash conversion cycle until FY20.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Shotcrete Market Growth: EDE continues to add customers in shotcrete division which now spreads across 5 States – Georgia, Colorado, Tennessee, South Carolina and North Carolina – and trials with potential clients stands underway with two new States – Texas and Mississippi.

Development of High Fly Ash concrete mixes: During Q1FY22, EDE commenced the development of several CO₂ footprint concrete mixes via EdenCrete® and high fly ash content, which curtailed high quantities of CO₂ footprint.

Source: Analysis by Kalkine Group

Key Risks:

High Competition Potential: Considering low barriers to entry and the increased threat from substitution, other market players can creep into the USA and Indian Market.

Insignificant Financial Control: Considering the history of loss-making trends, EDE needs to consider prudent cost control measures to cut down losses.

Technical Overview:

On the daily chart, EDE stock price witnessed a breakout of the falling trendline resistance at AUD 0.024 level and sustaining above the breakout level. Moreover, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, indicating a positive momentum. The momentum oscillator RSI (14-period) is at (~66.45 level), indicating bullish momentum in the stock. An important support level for the stock, is placed at AUD 0.021 while the key resistance level is placed at AUD 0.034.

Stock Recommendation:

EDE has delivered positive 3-month and 6-month returns of ~18.182% and ~8.333%, respectively. However, the stock is trading below the average of the 52-week high price of $0.045 and the 52-week low price of 0.015, indicating an accumulation opportunity. On a TTM basis, EDE is trading lower than the industry with 3.3x on price-to-book value multiple compared to the construction materials industry average of 4.4x, implying undervaluation. Considering the current trading levels, potential growth in shotcrete market in the US, already developed pipeline and potential development projects in the US, outperforming top-line growth with elevated levels of gross margin, technical levels mentioned above, undervaluation implied by TTM valuation, we give a “Speculative Buy” recommendation on the stock at the closing price of $0.025, down by ~3.847%, as of 17 November 2021.

EDE Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

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