Nanotech Security has 94% upside, says Echelon Wealth Partners

Following a financing that brought in $13.3-million, Echelon Wealth Partners analyst Ralph Garcea is feeling bullish about Nanotech Security Corp. (Nanotech Security Corp. Stock Quote, Chart, News: TSXV:NTS).

On May 18, Nanaotech announced it had closed a bought deal private placement led by Haywood and including Echelon, Canaccord Genuity, and GMP that would see it sell 11.5-million shares at $1.15. Management said it would use the cash to simplify and improve its capital structure.

Garcea says he encouraged by Nanotech’s attempts to diversify its business away from just currency. He notes the company is making progress in new verticals such as tax stamps, tickets and the pharma market. But the analyst says the company’s bread and butter is progressing beyond expectations.

“In FQ117 we learned that paid development contracts are progressing well,” he says. “The Company currently derives the vast majority of its Optics segment revenue from paid authentication development projects with major issuing authorities. These paid development activities incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes. These development contracts should turn into long-term revenue over the next two to three years with the Asian banknote opportunity expected to deliver revenue by the end of FQ118; recall that it was delayed as NTS continues to fine-tune OTF specs. Also in FQ117 we learned that NTS signed a $30M/5-yr development contract with an issuing authority for future banknotes. With the aforementioned deal, total paid development commitments are ~$6.5M in revenue in F2017, with an “active” pipeline.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $2.50 on Nanotech Security, implying a return of 94 per cent at the time of publication.

Garcea thinks Nanotech will post EBITDA of $2.8-million on revenue of $10.2-million in fiscal 2017. He expects these numbers will improve to EBITDA of $5.0-million on a topline of $18.0-million the following year.