5N Plus is on the road to recovery, says Cantor Fitzgerald

On Thursday, 5N Plus (5N Plus Stock Quote, Chart, News: TSX:VNP) will report its Q4 and fiscal 2012 results.

The company is coming off a disappointing Q3 in which it posted revenue of less than half of the previous year. The $120.7 million revenue number compared unfavourably to $242.3 million the company booked in Q3, 2011, but that quarter covered a period of four months, as the company changed its fiscal year.

The longer picture shows things are still on the general upswing for 5N Plus; revenue for for the nine-month period ended September 30, 2012 increased by 9.9% to $423.1 million compared to $384.9 million for the ten-month period ended September 30, 2011.

Cantor Fitzgerald analyst John Safrance says 2012, which saw shares of 5N Plus steadily fall, was a year of plugging the holes that were weakening commodity prices, excess inventory, and a stressed balance sheet. He says that with pricing for many of 5N Plus’s products nearing the marginal costs to recover them, it is likely we will see upside over the course of fiscal 2013. In a research update to clients this morning, Safrance reiterated his BUY rating and $3.50 one-year target on VNP.

St. Laurent, Quebec’s 5N Plus, which derives its name from the purity of its products, 99.999% (five nines), took off when the company, which produces essential components of thin-film solar modules, became a primary material supplier to American cleantech giant First Solar. When First Solar’s revenue was skyrocketing, it was being supplied cadmium telluride cells by 5N Plus.

5N Plus, meanwhile, was mirroring First Solar’s action, albeit on a much smaller scale. Sales increased from $10.3 million for the fiscal year ended May 31, 2005 to over $181 million in fiscal 2011. That moved shares of the company from a 2008 low of $3.50 to a high of $9.85 in March of 2011. The company hit a speedbump as commodity prices fell at the same time the company was having trouble digesting the $315-million acquisition of Belgium’s MCP Group.

Safrance says his forecast assumes lower but more stable average selling prices through to fiscal 2014, but the analyst believes the company’s margins will improve as its inventory costs fall.