Armed with $6.5 million and a new management team, Sprintex is about to relist on the ASX
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Sprintex has successfully completed its recapitalisation program, and is about to be reinstated on the ASX after a two-year absence.
Automotive engineering company, Sprintex (ASX:SIX) is about to make a comeback on the ASX, after being suspended from the bourse since September 2018, pending a recapitalisation of the company’s coffers.
Sprintex has now come back with fresh funds, new management, and a significantly reduced cost base that will make it a much more competitive outfit. Importantly, Sprintex is now also debt-free, resulting in further improvements to the bottom line.
The recapitalisation will allow the company to enhance its existing business and revenue streams and capture growth opportunities with new products and customers.
$6.5 million has been raised through a public placement at 8.6 cents per share that has been oversubscribed.
The re-listing is currently scheduled for Monday April 19.
Sprintex designs and manufactures superchargers for use in a wide variety of combustion engines.
In short, a supercharger is used to improve the performance of a vehicle, both in terms of power and fuel efficiency. It is a refined air compressor used to pump oxygen into an engine, increasing the engine’s power of combustion, which in turn powers the engine to produce maximum output.
They are used mostly by major car manufacturers as efficiency additions to an engine. As an example of what it can do, a four-cylinder engine fitted with a supercharger will give similar performance as a V8 engine.
Sprintex’s proprietary owned technology is its patent-protected twin screw supercharger.
Speaking exclusively with Stockhead, Sprintex CEO Jay Upton explains that a twin-screw compressor is a very high efficiency means of compressing air. Upton, who has decades of experience as an engineer, was also one of the designers that worked to improve the twin screw compressor in the 2010s – and has a patent for Sprintex against his name for his work.
“The Sprintex twin screw compressor is helical with the two rotors twisted. The action of rotating the rotors, which are called male and female rotors, compresses the air internally inside the compressor.”
Apart from automotive, the compressors have other applications, including aviation, marine and industrial engines. Recently, it is also being used to strengthen a car manufacturer’s green emission ratings, and to get more charge out of batteries in EV vehicles.
Indeed, clean energy is one area that Upton says he has been getting a lot of interest from recently.
“We’re seeing interest from fuel cell manufacturers. You can’t make a hydrogen fuel cell without some kind of a clean air compressor. Most compressors have problems with inclusion of hydrocarbons, but our twin-screw compressors are highly suited for hydrogen fuel cells.”
The company primarily operates in two markets within the automotive industry. The aftermarket segment focuses on sales of retrofit superchargers for on and off-road vehicles, while its OEM segment makes compressors not only for motor vehicles, but also for the aviation and marine industries. It designs and prototypes the product in Perth, but the manufacturing is done out of its facility in Malaysia.
Asked why the company’s second coming will be better than previously, Christopher Martino from Indian Ocean Corporate Pty Ltd, the Lead Manager on Sprintex’s recapitalisation, told Stockhead that a lot of changes were made in the last two years.
“We’re not only bringing fresh capital to Sprintex, we’re also bringing in new management. The company will increase margins through the acquisition of the remaining 50% interest in its production facility in Malaysia, in addition to a significant rationalisation in annual operating costs and elimination of company debt, “says Martino.
Sprintex currently owns 50 per cent of Proreka-Sprintex Sdn. Bhd, its Malaysian joint venture that currently produces all of its OEM compressors. As part of the recapitalisation Sprintex acquired for shares the 50% owned by the Malaysian JV partner enabling Sprintex to considerably reduce the production margin charged by the Malaysian facility.
This, the company says, will make its OEM pricing even more competitive, and maintain its superior cost advantage over competitors.
Speaking of competitors, the company’s main rival in the OEM segment is the Eaton Corporation, which is currently the largest manufacturer of automotive compressors and supercharges worldwide.
The additional capital will allow Sprintex to consolidate its existing revenue base and operations; and stay ahead of the curve in churning out new products in the OEM and aftermarket segments. According to Upton, in order to keep ahead of competition, investments in new products have to be continually made, as new engines are developed by car manufacturers every five to six years. In fact, it was the lack of funds to conduct product development that contributed to Sprintex’s suspension in 2018.
Sprintex is currently pursuing a couple of major pipelines. It’s in discussions with large Asian OEMs to combine turbocharging and supercharging, specifically with regards to meeting emission standards issued by governments in Asia.
“I feel that there is a huge application for that in the future, on city buses and truck emissions”, Upton said.
“In the case of city buses and garbage trucks, they speed up and slow down all day long. In fact, around 75 per cent of their operating cycle is acceleration and deceleration. What they are having trouble with is meeting emission targets, as the Chinese emission regulations are actually very tough”.
“So what manufacturers are now asking us to do, is to provide them with more instantaneous compression, and that’s exactly what our twin-screw compressors are able to do”, he added.
The company is also working to collaborate with a European company that specialises in high power density electric motors. This, Upton says, will be a breakthrough for Sprintex in that if “we can work together with that company and use their technology, to have a world beating component.”
Part of the money raised will be used to fund the development of its new product, the JL supercharger made for the Chrysler Jeep model, slated for production in June.
According to Upton, the Chrysler Jeep has taken off over the last 15 years as a lifestyle choice and has become the world’s most modified vehicle. More than 250,000 Chrysler Jeep units are being built at the moment.
So, is it a good time to invest in the Sprintex?
Martino believes the company is ripe for picking this time around.
“It’s a company that has flown under the radar for a long time. This is a simple financial equation, solved by removing manufacturing costs and improving margins, which allows for larger deals with OEMs. It’s a low hanging fruit”.
“The $21 million market cap doesn’t reflect the earnings potential and full value that this company is about to achieve over the next 12 months”, Martino added.
Upton agrees, saying the company only needs one big contract to make a significant impact.
“The fact that we have had some contacts with the hydrogen fuel and EV industries, means we are now at the point where our technology is viable for OEM. Sprintex is targeting execution of at least one contract in this market to catapult us to a much larger supplier of OEMproducts”, Upton says.
This article was developed in collaboration with Sprintex, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.