There’s lots of upside available to graphene company NanoXplore (NanoXplore Stock Quote, Chart, News TSXV:GRA), according to J. Marvin Wolff, analyst for Paradigm Capital, who delivered an update to clients on NanoXplore on Monday.
Wolff reiterated his “Buy” and $3.85 price target, saying that with commercial production about to start and supply contracts in the works, this stock should take off.
Montreal-based NanoXplore, which manufactures high-volume graphene powder for use in industrial markets, announced last Friday the closing of a $25-million private placement, aimed at furthering the company’s research initiatives, particularly with respect to the company’s graphene battery initiative, along with furthering its US expansion efforts, debt repayment and working capital.
President and CEO Dr. Soroush Nazarpour said NanoXplore’s ability to raise funds in the currently strained market environment is a credit to the company’s technology, employees and support of shareholders.
“These funds will not only provide necessary fuel for growth but will also provide financial stability for the company as we enter an uncertain economic environment associated with Covid-19. I remain confident in our current business plan as we position ourselves to become a global leader in graphene powder production and sales,” wrote Nazarpour in a press release.
In the same announcement, NanoXplore said it will be ramping up its efforts vis a vis its graphene battery initiatives with a plan to expand its in-house compounding production capacity.
On the closing of the financing round, Wolff said the funds give NanoXplore a cash cushion of $30 million, reporting that the commercial production of GRA’s graphene plant still has May as its target opening date but that the project has been slowed slightly by the COVID-19 crisis.
“With the graphene plant soon to start commercial production and supply contracts under negotiation, we are increasing our target EV/EBITDA multiple to 17.5x (15x prior), using 2023 (a full year of 10,000-tpa graphene production) EBITDA of $48.5M and a 10 per cent discount rate, reflecting management’s strong execution ability. We are maintaining our $3.85 target price (despite 15 per cent share dilution) as the company nears commercial production,” Wolff said.
Commenting on NanoXplore’s work on a graphene-enhanced anode for Li-ion batteries, Wolff said while the company is still in the research stage, NanoXplore’s work has nonetheless been noticed by the automotive, battery and specialty materials industry, with Wolff calling the initiative a “hidden asset” which could have substantial value.
In his note, Wolff sounded impressed by NanoXplore’s patent portfolio and also its M&A activity.
“Over the last two to three years, NanoXplore has bought several companies in order to be vertically integrated in the graphene space. This strategy not only cements the company as the global leader in the graphene space, but also allows the product to be introduced quickly into the plastics market with the automotive vertical as an initial focus,” Wolff said.
As for the numbers, Wolff revised his figures and is calling for fiscal 2020 revenue of $61.9 million (down from $73.3 million) and an EBITDA loss of $4.1 million (up from a loss of $3.2 million). His $3.85 target represented at press time a projected 12-month return of 181 per cent.