ASX:CSX
Cleanspace Holdings Ltd
Investment Summary
The fund managers believe that Cleanspace Holdings Ltd (CSX) is gradually moving toward profitability due to its strong operating leverage and effective cost management. Despite experiencing a significant revenue drop from healthcare sales post-COVID, CSX's industrial business segment has been growing at approximately 37% annually. With a shift back to their original distributor-based business model, the excess cost base has been reduced, resulting in a more sustainable cost structure. Recent revenue growth of 26% outpaced the company’s initially set targets, underscoring the potential for further profit inflection. CSX reportedly operates at gross margins of 70-75%, driven by the sales of high-margin consumables. While challenges like inventory lumpiness persist, management has guided for at least breakeven EBITDA this financial year, setting optimistic expectations moving forward. The firm’s unique, low-weight respirators, priced competitively, position it well amid a market where existing competitors are low-tech. As the company implements its strategies effectively, fund managers view their investment in CSX as having significant upside potential.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.48
- CSX reported revenue growth of 26%, exceeding the AGM guidance of 15%
- Mereweather Capital initiated its position in CSX as noted in the November monthly report
- Strong gross margins indicate potential for significant profitability if revenue growth is maintained
- The latest result was close to profit breakeven
- There is a positive outlook supported by continued operating cost discipline with a 6% decline from last year
- Mereweather Capital expects CSX to report a profitable second half
Mereweather Capital
30 Nov 2024
$0.39
- CSX is categorized as a classic busted IPO, experiencing significant revenue growth during the pandemic due to government funding.
- Revenue surged from $11.2m in 2019 to $49.9m in 2021, primarily from healthcare customers.
- The management misinterpreted panic buying as a sustainable trend, pivoting towards a healthcare focus and dramatically increasing costs from $8.2m in 2019 to $24.9m in 2022.
- This shift resulted in a swing from $16m profit in 2021 to $15.1m loss in 2022, leading to a drastic drop in share price.
- Analysis reveals industrial segment revenue is growing at ~37% per year, while healthcare revenue has nearly collapsed.
- CSX is returning to its original business model, selling through distributors, which helps manage costs effectively.
- The company benefits from a high gross margin of 70-75%, with potential for 40% operating profit margins.
- CSX's product innovation, including lighter respirators and patented airflow technology, provides a competitive edge.
- However, the business remains sensitive to supply chain dynamics, causing potentially lumpy sales patterns.
- Mereweather Capital continues to hold due to the recent share price dip and management's guidance of 15% revenue growth and maintaining a 30% target for the year.
- The expectations for 2026 are optimistic as the company aims for breakout profitability.
- Current market capitalization is around $28m, with a strong cash position of $8.5m and no debt.
- The investment is viewed as medium-weight in the portfolio, with potential for increasing the position if the growth thesis holds.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.