Paradigm Capital analyst J. Marvin Wolff is staying bullish on cleantech name NanoXplore (NanoXplore Stock Quote, Chart, News TSXV:GRA), saying in an update to clients on Tuesday that the company is nearing commercial production at its graphene plant.
Montreal-based NanoXplore, which is a vertically-integrated supplier of high-volume graphene powder for reinforced plastics in industrial markets, provided a corporate update at this year’s TMX Cleantech Investor Day, held on September 17. The company said it has completed the commissioning of its 4,000-tpa graphene plant, which is now the largest graphene plant in the world. NanoXplore described it as fully automated, with very high consistency and tight cost control owing to low batch-to-batch variance.
As relayed by Wolff, in its presentation NanoXplore focused on five end user markets with which the company is working, namely, automotive battery panels, automotive batteries, automotive fuel/brake lines, windmill composite parts and recyclable plastics.
Wolff said other potential verticals would include electronic packaging, consumer packaging, building and construction and under hood and dashboard applications for the automotive space.
Wolff said, “Owing to its recent discovery (2004), graphene has very few end-use markets. NanoXplore is aggressively developing end-use markets by using graphene as a performance enhancer for a variety of different plastics with many different end products.”
“Customers in these verticals have been testing and certifying product for over two years and are waiting to see the final product before signing purchase orders. We expect the purchase orders will come relatively quickly (i.e., over the next few months). Many potential customers have tested products, including well-known large companies; for example, Ford and GM in the automotive category,” Wolff wrote.
NanoXplore closed on a $25-million financing round earlier this year, giving it an approximately two-year cash cushion total of $30 million, according to Wolff, who said the proceeds from the equity raise will go towards purchasing new pelletizing equipment to optimize the graphene plant output along with about $2 million to be spent on the company’s joint graphene battery initiative.
Wolff also commented that NanoXplore’s patent portfolio is impressive and its decision to buy several companies in recent years to become vertically integrated helps cement the company’s status as a global leader in graphene while also allowing it to move fast to introduce the product into the plastics market.
With the update, Wolff reiterated his “Buy” rating and one-year target of $4.85 per share, which at press time represented a projected return of 146 per cent.
On his valuation, Wolff said, “With the graphene plant set to start commercial production soon and supply contracts under negotiation, we are maintaining our target EV/EBITDA multiple of 17.5x using 2023 (a full year of 10,000-tpa graphene production), EBITDA of $48.5M and a 7.5-per-cent discount rate, reflecting management’s strong execution ability and the retirement of production risk.”
“We maintain our $4.85 target as the company nears commercial production. While the former Sigma operations will have short-term negative performance, we concentrate on the longer-term highly valued graphene production and value of the graphene production patents,” he wrote.
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