NanoXplore wins price target raise from Beacon Securities

Beacon Securities analyst Ahmad Shaath is raising his target price on Canadian graphene company NanoXplore (NanoXplore Stock Quote, Chart, News, Analysts, Financials TSXV:GRA) on the back of two new supply agreements. In an update to clients on Friday, Shaath said sales efforts by NanoXplore are gathering momentum as the company looks to expand into new verticals.

Montreal-based NanoXplore is a manufacturer and supplier of graphene powder for industrial uses in sectors such as transportation, packaging, electronics and others. First discovered in 2004, graphene is a one atom-thick crystalline structure, an ultra-thin layer of graphite that has been found to have remarkable properties in terms of strength, elasticity and electrical and heat conductivity. NanoXplore has developed a range of graphene-based solutions, including GrapheneBlack power, heXo-G graphene-plastic masterbatch pellets and graphene-enhanced polymers.

The company announced on Wednesday a graphene supply and distribution agreement with Gerdau Graphene LTDA, a subsidiary of Brazilian steelmaker Gerdau. Gerdau recently founded Gerdau Graphene after four years of researching graphene and is seeking to leverage existing relationships to distribute graphene-enhanced products in industrial applications starting with a focus on concrete.

“Today’s announcement represents another important step forward in expanding graphene applications on an industrial scale and targets customers in multiple markets, particularly for the concrete and construction markets,” said NanoXplore president and CEO Soroush Nazarpour in a press release.

“I believe that this Agreement will help cement our leadership position in the graphene market, and that it has the potential to create a demand for graphene that is greater than what NanoXplore is currently capable of producing,” Nazarpuor said.

The news follows on NanoXplore’s June 16 announcement of a multi-year supply agreement with Tennessee-based Techmer PM, one of North America’s largest plastic compounders, who plan on using NanoXplore’s graphene on a wide range of uses and applications.

Shaath said there’s likely to be more supply agreements coming up, with catalysts arriving both from the company’s electric vehicle battery joint venture, VoltaXplore, as well as M&A activity.

“NanoXplore announced two new multi-year supply agreements over the last two weeks. We view the agreement with Brazilian steelmaker Gerdau of particular significance as it a) Expands GRA’ presence into a new vertical (construction materials) and b) adds a new multi-billion partner with significant presence in the Americas,” Shaath wrote.

“We expect graphene sales momentum to continue over the following months as NanoXplore bolstered its reputation in the marketplace with the agreements with Techmer and Gerdau,” he said.

“Agreements that add new verticals/applications will be of particular significance to the story as it adds further credibility to a) graphene’s commercial credentials as a true ‘wonder’ material and b) GRA’s position as the leader in graphene commercializing. Given the added diversification to GRA’s sales pipeline, we reduced the discount rate we apply to our valuation base (FY23E EBITDA) to five per cent (from ten per cent previously) and increased our multiple to 20x (from 17x previously),” Shaath said.

Shaath sees NanoXplore generating fiscal 2021 (year end June 30) revenue and adjusted EBITDA of $69.5 million and negative $4.4 million, respectively, and fiscal 2022 revenue and EBITDA of $83.8 million and negative $3.2 million, respectively.

With the update, Shaath has reasserted his “Buy” rating for GRA and upped his target from $5.00 to $6.00, which at the time of publication represented a projected one-year return of 38 per cent.

NanoXplore’s share price started popping over the last quarter of 2020, going from $1.50 all the way to $4.50 between September and the end of December. The stock had been trading lower over the first half of 2021 but it has lifted again to close on Thursday at $1.35 per share after the Gerdau announcement.

Shaath noted that NanoXplore will be commissioning a demo plant for its VoltaXplore JV in the fourth quarter of the current calendar year, saying that potential catalysts could come earlier than that in the form of additional partners joining the JV and awards of government grants. NanoXplore announced the JV in mid-April, which includes auto sector supplier Martinrea. NanoXplore and Martinrea have each contributed $4 million as an initial investment, with each company committed to provide up to an additional $6 million in development funding.

On the M&A front, Shaath said GRA is looking to conclude further acquisitions to expand into new verticals and/or to add manufacturing capabilities.

“We expect graphene sales momentum to continue over the following months as NanoXplore bolstered its reputation in the marketplace with the agreements with Techmer and Gerdau,” Shaath said.

NanoXplore released in May its unaudited interim consolidated financial statements for the three and nine-month periods ended March 31, 2021, showing revenues for the fiscal third quarter of $17.6 million compared to $14.5 million a year earlier and an operating loss of $3.6 million compared to a loss of $2.7 million a year earlier. Q3 loss per share was $0.03 compared to $0.02 for the previous year quarter.