5N Plus is a Buy on quarterly beat, says Laurentian Bank

Nick Agostino of Laurentian Bank Securities retains a positive view of 5N Plus (5N Plus Stock Quote, Chart, News TSX:VNP), maintaining a “Buy” rating and C$4.25/share target price for a projected return of 92.3 per cent in an update to clients on Wednesday.

Montreal-based 5N Plus operates R&D, manufacturing and commercial centres in strategically located facilities around the world including Europe, North America and Asia. The company uses a range of proprietary and proven technologies to develop and manufacture its products, which are applied in a number of industries including renewable energy, security, space, pharmaceutical, medical imaging and industrial and additive manufacturing.

Agostino’s updated analysis comes on the heels of 5N Plus releasing its fourth quarter financial results for the 2021 fiscal year.

“The company notes strength from Performance Materials, which includes the old Eco-Friendly unit, plus micropowders and metal-centric products including some Renewable Energy, while Specialty Semiconductor, which include the former Electronic Materials unit plus SASI, Renewable Energy and now AZUR, was in-line,” Agostino said.

The company’s financials were headlined by $64.6 million in revenue (all financial report figures are in US dollars except per share numbers), beating the Laurentian Bank projection of $56.3 million, as well as producing a year-over-year improvement of 39.6 per cent.

The company also exceeded expectations on adjusted EBITDA, with the $10.1 million and 15.6 per cent margin report coming in ahead of the Laurentian Bank estimate of $7.9 million and a 14.1 per cent margin, as well as beating the $6.5 million and 14.2 per cent margin from the same quarter of 2020.

“5N Plus delivered significant revenue growth in Q4 and for the full year, despite challenging global business conditions,” said Gervais Jacques, Interim President and Chief Executive Officer of 5N Plus in the company’s February 22 press release. “Results were also impacted by incremental costs associated with international freight and consumables. Mindful of inflation and its impact on our businesses, we continue to be disciplined, focused and methodical in addressing these ongoing challenges, while also supporting our continued growth.” 

A significant portion of the company’s positive reports in the quarter stemmed from its acquisition of AZUR, a German-based producer of photovoltaic cells, which contributed $17 million in revenue over a two-month period in the quarter, while planned price increases to offset costs also played a role in the beat.

“The acquisition of AZUR strengthens our value chain, competitive capabilities and opens new business opportunities for the future,” Jacques added. “While our immediate focus is on ensuring the successful integration of AZUR to unlock the full potential of our new value chain, we will also continue to proactively seek opportunities to accelerate the Company’s growth trajectory as a leading global producer of specialty semiconductors and performance materials critical to many key sectors, including applications in imaging and sensing, renewable energy and active pharmaceutical ingredients.” 

5N’s stock price has plummeted by 46.7 per cent over the last 12 months, with a 4.6 per cent loss since the start of 2022. The stock was riding at a 52-week high of $4.79/share on March 16, only to fall off significantly in May before dropping to a 52-week low of $2.13/share on December 15.

Agostino has taken the quarterly results as a positive for 5N Plus, saying, “VNP delivered a solid sales, EBITDA and margin beat aided by the AZUR acquisition. The company ended 2021 with strong bookings and backlog. The only blemish is the delayed filing of the Business Acquisition Report for AZUR as 2019 and 2022 financial results have yet to be converted from German GAAP to IFRS accounting.”