5N Plus is undervalued, Laurentian Bank Securities says

With its fourth quarter 2017 results coming in above consensus, investors can feel positive about 5N Plus Inc. (5N Plus Stock Quote, Chart, News: TSX:VNP), says analyst Nick Agostino with Laurentian Bank Securities, who rates VNP as a “Buy” with a target price of $3.60.

On Wednesday, specialty chemicals and engineered materials company 5N Plus reported its results for Q4/17 and fiscal year ended December 31, 2017, with adjusted EBITDA and EBITDA for the year hitting $25.1 million (USD) and $26.9 million, respectively, compared to $20.1 million and $15.1 million in 2016. For the quarter, adjusted EBITDA and EBITDA were $6.1 million and $4.4 million, respectively, which compares to $4.3 million and $4.8 million in 2016.

President and CEO Arjang Roshan says that the company is progressing well with regards to its five-year strategic plan.

“The end of 2017 marks the second, and a full year, under 5N21,” said Roshan in a press release. “Thus far, our performance is driven by the execution of the plan’s short‐term objectives, mainly related to optimizing core businesses and global assets. The outcome can be summarized by significant growth in profitability, enhancement in quality of earnings and reduction of earnings volatility. Consequently, return on capital employed has improved markedly and we have continued to strengthen our balance sheet aided by recurrent cashflows.”

For Agostino, numbers of note in the quarterly results were sales, which at $52.5 million (USD) came in at about five per cent above his estimates and about two per cent above consensus, and the adjusted EBITDA, which beat his above-consensus estimate of $5.8 million.

The Montreal-based company has a healthy balance sheet and very low leverage, says the analyst, with net debt at $11.4 million.

Agostino rates VNP a “Buy” with a one-year target price of $3.60, based on 7.5x 2018/2019E EBITDA, representing a 32.8 per cent return at time of publication.