NanoXplore has 103% upside, Beacon Securities says

Following the results of a new feasibility study, Beacon Securities analyst Ahmad Shaath is a little more bullish on graphene player NanoXplore (TSXV:GRA).

On Tuesday, NanoXplore released the results of an independent feasibility study for its coming 10,000-metric-tonne-per-year graphene production plant. The highlights included total plant construction of approximately $40.1-million, a project life of 25 years, and an average selling cost of $10,000 per metric tonne vs. a cost of just $4,042 per metric tonne.

“This is a significant achievement for Nanoxplore and a significant milestone for graphene market,” CEO Dr. Soroush Nazarpour said. “This upcoming 10,000-metric-tonne-per-year graphene production plant would be the largest of its kind in the world and would position Nanoxplore as a leader in graphene market. Offering graphene with a price of $10,000 per metric tonne has been repeatedly asked by our partners and clients, and such pricing will meaningfully help the global growth of graphene market. I am very pleased that we are taking this initiative with project metrics that make sense for our customers, existing shareholders and future investors.”

Shaath says this is an important development because it reduces the capital expenditure the company will ultimately make, reducing the company’s financing needs.

“The study showed significant improvement compared to the PEA figures, largely due to material improvement in capex and to a lesser-extent opex,” the analyst notes. “The company managed to shave ~50% of its total capital expenditures required and 10% on its opex, which yielded a robust pre-tax NPV of $476 million (~17% improvement).”

In a research update to clients today, Shaath maintained his “Buy” rating, but raised his one-year price target on NanoXplore from $3.00 to $3.25, implying a return of 103 per cent at the time of publication.

Shaath thinks GRA will generate Adjusted EBITDA of negative $3.2-million on revenue of $8.8-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $400,000 on a topline of $12.5-million the following year.

The analyst says shareholders can now expect less dilution than he previously expected.

“With the reduced capex we now estimate NanoXplore will need to raise ~$65 million (from $80 million previously),” he says. “In addition to the ~$35 million of initial capex, GRA will need working capital for its graphene powder production and the pending acquisition of Sigma Industries. Consequently, we revised our financing assumptions and now expect Nano Xplore to raise $35 million @ $1.60 per share (from $40 million @ $1.80 per share) and $30 million in debt (from $40 million previously).”