Nanalysis Scientific isn’t done yet, says Echelon

Medical equipment company Nanalysis Scientific Corp. (Nanalysis Stock Quote, Chart, News, Financials TSXV:NSCI)in has been a rocket of a stock in recent months but there should be more where that came from according to Echelon Capital Markets analyst Stefan Quenneville. The analyst initiated coverage of Nanalysis Scientific with a “Buy” rating and target price of $2.85/share for a projected return of 161 per cent in an update to clients on September 21.

Established in 2009 and headquartered in Calgary, Nanalysis Scientific develops, manufactures and sells compact nuclear magnetic resonance (NMR) spectrometers and MR imaging equipment for the pharmaceutical, biotech, chemical, security, food, materials and education industries. The company also sells components for precision analytical instruments and provides services related to its NMR equipment.

Quenneville’s initiation coverage comes with the belief that the company’s NMR technology will transform the way laboratory and field-based users approach chemical analysis.

The company offers 60 MHz and the recently-launched 100 MHz benchtop instruments, which has already created a backlog as the company tries to have its manufacturing capacity match sales demand, though Quenneville notes that Nanalysis has recently acquired more space and onboarded more staff to double the number of instruments shipped per month.

In addition, the company also offers a high-pulse NMR console, an MRI console, and accessories including flow kits and auto samplers.

Nanalysis’ products are developed and manufactured in its facility in Calgary and sold directly in the US, Canada, Germany, Switzerland and France, with a network of 45 dealers servicing the rest of the world. The company has also built up a list of over 900 partners, with some of its most notable partners including Bosch, Dupont, Hitachi, 3M, Bristol-Myers Squibb, Eli Lilly, the U.S. Department of Homeland Security and the United States Navy, among others.

Nanalysis has reported revenue over $8 million for each of the last three years, and the company has reached $7.6 million in the first half of 2021 after reporting $4.3 million in revenue in the second quarter, marking a 118 per cent year-over-year increase.

The company’s Nanalysis instruments account for 64 per cent of its revenue, with RS2D components and electronics accounting for the remaining 36 per cent, while the United States is its biggest market, accounting for 39 per cent of the company’s revenue.

“Our efforts in 2020 are really bearing fruit in 2021 and we expect to be able to build on this momentum in the back half of the year,” said Sean Krakiwksy, CEO of Nanalysis in the company’s August 26 press release announcing its second quarter 2021 financials. “Strong demand for our 100MHz product, ongoing demand for our 60MHz, and continued interest in the RS2D product line have all contributed to these results. Manufacturing processes continue to be streamlined and standardized, with improvements being integrated into our processes continuously. We expect further increases in 100MHz production capacity in the back half of the year.”

The company began taking its next steps toward scaling its operations, making RS2D, a French producer of next-gen electronics for MRI and NMR systems, its first acquisition in March 2020, then further expanded its footprint in July by acquiring One Moon Scientific, a New York-based magnetic resonance software company specializing in in a suite of software tools to streamline and automate MR data analysis and management, for US$625,000, of which $275,000 will be paid in cash and $350,000 will be paid through the issuance of four promissory notes.

Quenneville is projecting steady growth for the company over the next year or two, highlighted by a potential 124 per cent year-over-year increase in revenue to a projected $17.7 million for 2021, followed by a potential 77.4 per cent year-over-year increase to $31.4 million for 2022. 

Quenneville also expects the company’s EBITDA to turn positive at $3.2 million for an 18 per cent margin in 2021 after reporting a $1.6 million loss in 2020, then projecting a near doubling to $6.3 million in EBITDA for 2022, marking a 20 per cent margin.

The company’s valuation data also shows the company heading in the right direction, as the EV/Sales multiple is projected at 5x for Nanalysis for 2021 compared to an 8.8x projection for peers, with another forecasted drop to 2.8x for Nanalysis and 7.9x for peers in 2022. Meanwhile, after not reporting an EV/EBITDA multiple in 2020, Quenneville projects a multiple of 27.7x in 2021 for Nanalysis compared to the peer projection of 28.4x, with a greater discrepancy expected in 2022 with a projected multiple of 14x for Nanalysis compared to 25.3x for the peer group.

With figures in line with its scientific instrument peer group, Quenneville is optimistic about the company’s path moving forward, believing it has the potential to disrupt its market.

“While our valuation is based solely on the NMR business, we note that the portable MRI opportunity represents meaningful upside optionality over the longer-term and we would look to revisit our price target upon announcement of further key partnerships and milestones,” Quenneville said.

Overall, Nanalysis’s stock price has risen by 150 per cent for the year to date, reaching a high point of $1.48/share on July 12.