Yue (Toby) Ma of Research Capital Corporation is staying bullish on Nanalysis Scientic Corp. (Nanalysis Stock Quote, Chart, News TSXV:NSCI), maintaining a “Speculative Buy” rating and $2/share target price for an implied return of 65 per cent in an update to clients on Friday.
Established in 2009 and headquartered in Calgary, Nanalysis Scientific 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 the company officially released its fourth quarter financial results, which were headlined by $5.1 million in revenue, which was in line with the preliminary result released in February and beat the original Research Capital projection of $3.9 million, while also nearly doubling the $2.7 million reported in the same quarter of 2020.
However, the company’s revenue was slightly different from what Ma had projected, with $3.6 million from its benchtop NMR sales compared to the $4.3 million Research Capital projection after shipping 30 units of 60MHz NMRs in the quarter, along with 13 of its 100MHz NMRs and another 31 on back order. The shortfall was offset by the company generating $1.5 million from its RS2D business to significantly outpace the Research Capital expectation of $0.8 million.
The company is also working to expand its manufacturing capacity, particularly for its 100MHz NMRs, in the name of reducing the lead time from receiving an order and having it shipped from 2-3 months to 2-3 weeks.
“We are extremely proud to report a year of 100 per cent revenue growth,” said Sean Krakiwsky, Founder and CEO of Nanalysis in the company’s April 28 press release. “The recently announced acquisitions in early 2022 combined with our healthy balance sheet will provide the drivers from which we can build on our growing baseline business for the coming years. We plan to continue to expand our addressable markets, ensure synergies among our business divisions, and push organic sales of our existing product lines to maintain our growth trajectory for the foreseeable future.”
Meanwhile, the company’s gross margin came in at 61 per cent for the quarter compared to the Research Capital estimate of 60 per cent, experienced a $0.7 million net loss compared to the Research Capital projection of a $0.8 million loss, and finished the quarter with $10.8 million in cash compared to $4.7 million in debt after closing a $15.2 million equity financing in February.
Nanalysis ended the 2021 fiscal year with $16 million in revenue, and Ma believes the number will continue to grow moving forward. For 2022, he expects another spike to $35.5 million for a potential year-over-year increase of 121.8 per cent. From there, he projects a jump to $53.6 million for 2024, beginning a gradual growth ramp through the rest of the decade to a projected $94.5 million for 2030.
In the same time period, Ma forecasts the company’s gross margin to gradually rise from the reported 59 per cent in 2021 to 61 per cent from 2027 onward.
From a valuation standpoint, Ma forecasts the company’s P/Sales multiple to drop from the reported 7.1x in 2021 to a projected 3.2x in 2022, then to 2.1x in 2023 to present a significant discount to the peer group median for life science companies that develop and market analytical instruments of 4.9x, along with the peer group average of 5.5x.
Ma also expects the company’s net income to turn positive in 2023 at $6 million, starting a run that Ma projects to reach $14.7 million by 2030, with net margin running up to 16 per cent by the end of the decade.
For investors, Ma forecasts initial positive EPS of $0.06/share in 2023, which he expects to move to $0.16/share by 2030; Ma also introduces a P/EPS valuation multiple of 21.2x in 2023, which he forecasts to fall to 15x by 2025.
In terms of operations, Ma also forecasts positive cash flow per share beginning in 2023 at $0.06/share and reaching $0.08/share by 2025, with the corresponding P/CFPS multiple emerging at a projected 21.5x in 2023, then dropping to a projected 15.1x in 2025.
Looking forward, Ma believes the three-pronged ecosystem Nanalysis has built will serve it well in the name of long-term growth.
“For the hardware segment, we view 100MHz NMRs and QUAD as key growth drivers. The software segment is expected to start to generate revenues in 2023. The sales platform should continue generating gradually increasing cash flow. Management would be focused on generating organic growth in 2022 and expects to resume M&As in 2023 to enter into the FDA-regulated human MRI market,” Ma said.
Nanalysis has seen its stock price drop by 11.4 per cent since the start of 2022, experiencing plenty of ups and down in that time after starting the year at $1.41/share ahead of a drop to $1.09/share on January 24.