Nanotech Security has 87.5% upside, Haywood says

Ahead of the company’s first quarter results, Haywood analyst Pardeep Sangha is maintaining his bullish stance on Nanotech Security Corp. (TSXV:NTS).

On February 22, after market close, Nanotech Security will report its Q1, 2018 results. Sangha expects this will be the third quarter in a row of positive Adjusted EBITDA for NTS, and the analyst is forecasting EBITDA of $700,000 on revenue of $2.9-million, a topline that would be up 314 per cent over the $700,000 topline the company posted in the same period last year.

Sangha says he expects delays that have plagued the company of late will be resolved in the near term.

“Nanotech’s share price has declined 21% this year as the markets were expecting announcements regarding the large Asian customer and the tax stamp opportunity,” the analyst notes. “We believe both announcements will occur in the first half of CY18. Nanotech is currently trading at 3.2x EV/Revenue of our CY18 estimates, which is above its industry peer group average of 2.6x EV/Revenue of consensus CY18 estimates.

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $2.25 on Nanotech Security, implying a return of 87.5 per cent at the time of publication. He rates the risk profile of the stock as “Very High”. The analyst explains that his target price is based on applying a 3.8x EV/Revenue multiple and a 9.8x EV/EBITDA multiple to our CY19 forecast.

Sangha thinks Nanotech will generate Adjusted EBITDA of $4.0-million on revenue of $16.1-million in fiscal 2018. He expects those numbers will improve to EBITDA of $13.7-million on a topline of $34.5-million the following year.

Sangha says he will be on the conference call following the release of the results and will be listening for an update on OTF production for large Asian customer who was delayed from last calendar year, an expected announcement on tax stamp opportunity in India, which was under contract negotiations, whether management reiterates its guidance of 20% to 40% revenue in FY18 excluding Asian OTF customer, and for progress on large $30M development contract and potential for additional development contracts.