Nanalysis Scientific gets a target reduction from Research Capital

Yue (Toby) Ma of Research Capital Corporation has made a small adjustment to his view on Nanalysis Scientific (Nanalysis Scientific Stock Quote, Chart, News, Financials TSXV:NSCI), maintaining a “Speculative Buy” rating but reducing his target price from $2.20/share to $2/share for an implied return of 67 per cent in an update to clients on Friday.

Established in 2009 and headquartered in Calgary, Nanalysis Scientific Corp. is a vertically integrated global scientific instrument manufacturer that develops and markets proprietary benchtop nuclear magnetic resonance (NMR) systems and magnetic resonance imaging (MRI) consoles, as well as providing software solutions in multiple markets, including food, pharma/biotech, chemical, academic research, security/forensics, petroleum, and education.

Ma’s latest analysis comes after Nanalysis closed on a new equity financing and after making a few tweaks to his modelling following the release of preliminary fourth quarter results, headlined by $5 million in revenue to beat the consensus estimate of $4.3 million and the Research Capital projection of $3.9 million, and also nearly doubling the $2.7 million in revenue reported on a year-over-year basis. Company management suggested guidance between 63 and 65 per cent for its gross margin for 2021, implying a fourth quarter margin between 56 and 64 per cent compared to the Research Capital estimate of 65 per cent.

The company closed a round of equity financing valued at $15.2 million, with approximately 13.8 million shares distributed at $1.10/share. Nanalysis also completed the first phase of its acquisition of Quad Systems, which is presently transitioning from pre-revenue to commercialization with a full launch expected in March. Nanalysis expects to acquire 43 per cent ownership in Quad Systems by February 28, with management expecting the remainder to be acquired by July 1, 2023.

Ma has incorporated the Quad Systems acquisition into his modelling, conservatively estimating $4.4 million in sales in 2022 before jumping to a projected $15 million in 2023 and $30 million by 2030.

“Our growth trajectory continued through the end of 2021 and continues today,” said Sean Krakiwksy, Chief Executive Officer of Nanalysis in the company’s February 17 press release. “After a solid fourth quarter we closed a banner year in 2021 for Nanalysis.  Over a month ago we closed our acquisition of K’Prime and subsequently announced the acquisition of Quad Systems.  We couldn’t have been more pleased with the interest in our recent equity offering, resulting in an upsizing to satisfy demand.”

“We truly believe we have set the stage to continue our growth trajectory into 2022, 2023 and beyond,” Krakiwsky added.

Ma sees growth continuing for Nanalysis in his revised financial projections, calling for overall revenue of $16 million to complete the 2021 fiscal year, implying year-over-year growth of 102.5 per cent. From there, Ma projects a spike to $35.5 million in revenue for 2022 (previously $31.1 million) for a potential year-over-year increase of 121.9 per cent before the growth trajectory slows down, eventually getting to a projected $72.7 million in 2025 (previously $48.7 million) for an implied year-over-year increase of 14.5 per cent.

Accordingly, Ma’s P/Sales multiple projection is also set to improve in that time, dropping from a projected 7x in 2021 to 3.2x in 2022, then continuing to drop through 2025, which is projected to have a multiple of 1.5x.

Ma is projecting similar growth in the company’s gross profit beginning in 2022 at $21.3 million (previously $18.7 million), with eventual growth to a projected $29.2 million (previously $45.3 million) in 2025. After maintaining a consistent gross margin of 60 per cent in his previous estimates, Ma now projects the gross margin to reach 62.3 per cent by 2025.

Ma sees NSCI’s net income turn positive in 2022 but at a lower rate of $700,000 compared to the previous $1.8 million estimate. However, Ma also expects net income to take a sharp upward trajectory to $9.8 million in 2025, up from the previous $7.6 million projection.

Meanwhile, a look at a pro forma income statement shows Ma’s belief that the company’s EBT will turn positive in 2022 at a projected $714,000 after years of losses, then projecting a growth curve that reaches $13.4 million in EBT by 2025.

According to Ma, the stage is now set for sustained future growth for Nanalysis.

“NSCI has built and is expanding a trinity eco-system in the global nuclear resonance market – consisting of hardware products, software solutions and a sales platform,” Ma said.

Nanalysis has proven to be a boon for investors over the last 12 months, producing a return of 129.7 per cent in that time, though 2022 has gotten off to a slow start with a 12.1 per cent loss. The stock climbed to a 52-week high of $1.69/share on November 11, producing a near quadruple on its 52-week low of $0.46/share from March 2.