Paradigm Capital analyst J. Marvin Wolff is telling investors to expect more contract wins for NanoXplore (NanoXplore Stock Quote, Chart, News, Analysts, Financials TSX:GRA) in the weeks and months to come, saying in an update to clients on Thursday that revenue should more than double over the next 12 months.
Montreal-based NanoXplore saw its share price jump almost six per cent on Wednesday as the graphene company announced its first multi-year high-volume graphene purchase order with custom plastics compounder Techmer PM. Based in Tennessee, Techmer will market graphene-enhanced plastics to a number of its 16 verticals which cover areas like automotive, household goods, consumer and electronic packaging and military industries.
In a press release on the event, Techmer PM’s CEO Michael A. McHenry said the NanoXplore deal complements his company’s leveraging of leading-edge technology to maximize performance, while NanoXplore president and CEO Soroush Nazarpour said,
“This agreement is particularly exciting, as it allows us to further emphasize the value of graphene and enhance the profile of our GrapheneBlack brand. It also fosters collaboration with a leader in the U.S. market and furthers our efforts to expand the use of graphene,” Nazarpour said.
NanoXplore went on a serious run over the back end of 2020, taking the stock from just over $1.50 in September to as high as $4.50 by the year’s end. GRA has pulled back since and is currently trading in the $3.00-$3.50 range.
But Wolff sees a lot of upside to the name, rating GRA a “Buy” with a 12-month target of $10.50, with both the rating and target reiterated in his latest report.
Wolff said as one of the largest global producers of low-cost, high-quality graphene — a relatively new product (discovered in 2004) with currently very few end-use developed markets — NanoXplore is aggressively developing those markets by using graphene as a performance enhancer for a variety of different plastics.
On the new contract, Wolff said while no volumes were provided through the press release, he expects it could grow over the three-year period to 4,000 tpa (tons per annum).
“In our view, this first purchase order with Techmer only strengthens our position that NanoXplore will need several 4,000-tpa production modules to meet demand,” Wolff wrote.
“We expect NanoXplore to announce four more purchase orders similar to this one over the next few weeks. These orders have been in the works for several months,” he said.
“As the additional purchase orders are signed, we expect NanoXplore will soon be ordering the long lead (six-month) equipment to double capacity at its Montreal location from 4,000 tpa to 8,000 tpa. We understand all the bricks and mortar to accommodate the equipment are completed,” Wolff said.
As Wolff has described it, NanoXplore’s graphene platform technology can be used by several different verticals, while the company is currently focused on purchase orders in the recyclable plastics, EV battery and transportation industries.
On recyclables, Wolff said NanoXplore is catching a tailwind in demand for plastics that can withstand multiple recycling. That’s right up GRA’s alley, as graphene-enhanced consumer plastics can be recycled six times before the need for adding virgin plastic, unlike the current consumer plastic standard in which the polymer chains break down in recycling, leaving the material suitable for only lower forms of plastic.
In transportation, Wolff pointed to NanoXplore’s subsidiary SMC which is producing automotive body panels with added graphene, allowing for much lighter and stronger panels that have good paintability but with no increase in cost. NanoXplore has also been working with Martinrea, currently GRA’s largest shareholder, on graphene-enhanced auto fuel and brake lines, while NanoXplore has also been working for over two years with a major automotive OEM on interior plastic applications for products that are much stronger and more resilient to extreme temperatures.
On the major automotive OEM partnership, Wolff said, “We understand that negotiations on a purchase with this customer are in the final stages. This product could result in large volume as it applicable to almost every vehicle manufactured. The material also displays antimicrobial and anti-COVID properties,” Wolff said.
The analyst sees strong EBITDA growth in GRA’s future due to the potential to build 4,000-tpa modules similar to the one in Montreal but in virtually any location best suited for the client.
“The rollout of 4,000-tpa modules provides very strong EBITDA growth owing to the robust economics of each module and low capex cost of $15 million per module,” Wolff said.
“Should higher graphene production volumes ensue, we could see commensurately higher share valuation target levels,” he said.
By the numbers, Wolff is forecasting NanoXplore to generate fiscal 2021 (year end June 30) revenue and EBITDA of $71.6 million and negative $4.2 million, respectively, fiscal 2022 revenue and EBITDA of $179.7 million and $48.5 million, respectively, and fiscal 2023 revenue and EBITDA of $241.5 million and $71.4 million, respectively.
At press time, Wolff’s $10.50 target represented a projected one-year return of 213 per cent.
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