TSE:NANO is a catalyst-rich cleantech play, says Eight Capital

Nano One Materials (Nano One Materials Stock Quote, Chart, News, Analysts, Financials TSXV:NNO) has already delivered in spades over the past 12 months, but investors can expect more upside from the clean tech company, according to Eight Capital analyst Sean Keaney, whose coverage initiation on Tuesday recommended a “Buy” with a price target of $8.00.

Vancouver-based Nano One is a developer of low-cost, high-performance battery materials with an eye towards responding to supply chain constraints in lithium ion batteries. The company has a number of partnerships ongoing and has patented its One-Pot Process for the production of cathode active materials.

Slowly on the uptick for a number of years, Nano One’s share price started to take off halfway through 2020, with the company announcing a number of developments which have brought the company closer to bringing its products to market.

Early last year, Nano One announced a patent for its lithium nickel manganese oxide (LNMO) cathode material, also known as high voltage spinel (HVS), which in testing has not only shown to increase durability but takes out the need for cobalt from the battery.

On the partnership side, last year Nano One entered a Joint Development Agreement with a global cathode material producer in Asia, one which will see the two companies develop cathode materials made with their combined technologies, including Nano One’s One-Pot process for producing LNMO crystal cathode powders. The company also announced last year an evaluation agreement with a major global automotive company as well as positive test results from a solid-state battery tech collaboration with the University of Michigan.

In terms of financing, the company closed last February on an $11-million private placement, followed up by a $14.7-million equity offering last fall and then, just last week, Nano One closed on a $28.9-million bought deal including over-allotment. On this latest financing, the company said the proceeds will go towards R&D, a pilot plant expansion, general corporate purposes and business development and strategic initiatives with its partners and collaborators.

On Nano One, Keaney said there are cost advantages across the supply chain which link its technology with the growing shift towards giving primacy of place to ESG (environmental, sustainability and governance) concerns, along with the need for more cost-effective and efficiency-supporting battery tech.

“Nano One has developed a patented process (the ‘One-Pot Process’) which we believe has the potential to disrupt the lithium ion (li-ion) battery cathode supply chain,” Keaney wrote in his coverage launch.

“The company is pre-revenue, but the potential of the One-Pot Process has caught the attention of numerous companies, and Nano One has partnerships across the li-ion battery supply chain. We estimate that the company will achieve first revenues in 2023 and that revenues will grow steadily from that point as the technology becomes more widely adopted,” Keaney said.

The analyst said costs related to the production of cathode active materials made up by far the largest component of battery costs at currently about 27 per cent.

“The One-Pot Process can introduce material savings of up to $4,000/t for removing the need to sulfate certain metals and up to $1,000-2,000/t for lithium hydroxide conversion and shipping,” Keaney wrote.

“The One-Pot Process also eliminates the need for the precursor (PCAM) step, which reduces the operating costs and associated margins for those businesses. The One-Pot Process is also simpler with few steps, which provides for savings around conventional process costs for cathode active material. We also believe that performance and durability improvements will allow cell manufacturers and OEMs to potentially scale back battery size while maintaining performance, which could represent additional cost savings or scale up with lower costs to increase range. We assume that these cost savings are in the ten to 15 per cent range, but acknowledge it could fall outside that range for certain chemistries,” Keaney said.

On Nano One’s ESG advantage, Keaney pointed to the European Commission’s recent addition of lithium to its list of raw materials deemed essential in securing a domestic supply, along with the EC adding a requirement that companies report on their battery supply sustainability and carbon footprint. Nano One’s battery tech eliminates the need for metal sulfates, a costly, energy intensive crystallization process for metals to undergo. Nano One’s process also eliminates the need to convert lithium carbonate to lithium hydroxide as well as reducing the need for cobalt and the questionable mining practices currently involved in its production.

Keaney said there’s a catalyst-rich story to Nano One from this point forward, as the company’s technology continues to gain attention and traction with partners.

“A new partnership or the progression of an existing one, would be supportive of the stock, and we believe that we will see several such announcements this year,” he added.

On a timeline to revenue for Nano One, Keaney said it’s still a few years out. The analyst has $0.0 for revenue estimates in 2021 and 2022, followed by $2.7 million in revenue for 2023. On adjusted EBITDA, Keaney thinks NNO will show a loss of $5.6 million in 2021, a loss of $6.2 million in 2022 and a loss of $4.9 million in 2023.

“If Nano One were to move forward with a significant partnership, it would experience a massive step change in revenue and cash flow. However, because of the lead-time associated with building a new facility, we believe that even under this optimistic scenario, the company would be two to three years from production. Beyond the ~2023 time frame, we believe that revenues will grow significantly as more partnerships are confirmed and the industry continues its rapid expansion,” Keaney said.

At the time of publication, Keaney’s $8.00 target represented a projected one-year return of 49.5 per cent.