NanoXplore receives a target drop from Beacon

Canadian graphene company NanoXplore (NanoXplore Stock Quote, Chart, News, Analysts, Financials TSXV:GRA) had a mixed quarter, according to Beacon Securities analyst Amhad Shaath, but investors can expect a solid order flow for the 2022 year. In a Wednesday update to clients, Shaath lowered his target price from $8.25/share to $6.00/share while maintaining a “Buy” rating on the stock.

Montreal-based Nanoxplore manufactures and supplies a range of graphene-based solutions including powder, plastic masterbatch pellets and enhanced polymers as well as offering photonic enclosures, li-ion batteries and medical parts.

Shaath’s report comes after Nanoxplore released its third quarter financial results for the 2022 fiscal year. Topline revenue was a positive for Nanoxplore, as the reported $28.4 million represented a 54 per cent year-over-year increase, and it also came in as a beat compared to the Beacon Securites expectation of $23 million and the consensus projection of $22.5 million.

However, the news wasn’t quite as good on the margins, as Nanoxplore’s report of $3.1 million in gross profit, despite being a 40 per cent year-over-year increase, only represented an 11 per cent gross margin, missing on the Beacon Securities estimates of $4.3 million in gross profit and an 18 per cent margin.

The company’s adjusted EBITDA report told a similar story, as Nanoxplore reported a $2.4 million loss to miss in relation to the Beacon Securities projection of a $0.6 million loss and the consensus call of a $1.4 million loss.

According to Shaath, the miss on EBITDA was due to the lower gross margin as the company was only able to pass through a portion of the increase in raw materials and labour costs to its customers, which was then compounded by higher than expected SG&A expenses.

Company management remains optimistic about its future prospects.

“I am very pleased with NanoXplore’s performance in Q3-2022 as we delivered record revenues from customers and Adjusted EBITDA consistent with our expectations, despite unfavourable supply chain issues,” said Soroush Nazarpour, President and Chief Executive Officer of Nanoxplore in the company’s May 16 press release. “We remain on track to meet our revenue guidance for fiscal 2022 and to achieve positive Adjusted EBITDA in the fourth quarter.”

On its conference call, Nanoxplore executives also discussed its sales funnel, which has expanded to include approximately 200 potential customers, with talks reaching advanced stages with roughly 50 of those customers and a timeline of approximately two years to complete the process.

Nanoxplore had a busy start to the month of May, first announcing a formal partnership with a longtime collaborator, geosynthetics manufacturer Solmax Group, on a blanket purchase order to explore graphene applications in geomembranes.

“The total market potential is estimated at 75,000 tonnes per year,” Shaath said. “This contract was the culmination of over five years of collaboration between the two companies.”

The company followed that announcement by securing an agreement with South Bend, Ind.-based Molding Products LLC to produce and sell its GrapheneBlack sheet molding compound, which will be used to create high quality, lightweight composite exterior and battery enclosure parts for cars and trucks, such as hoods, bumpers, roofs and battery packs, according to Nanoxplore’s May 12 press release.

Management also spoke about the timeline for its second graphene production module, which is now expected to be commissioned in 2024, and will add 4,000 tpa in capacity based on expected customer demand.

“The site for the second facility has not been selected yet but we understand that GRA is targeting a US-based facility and prefers to have access to a clean energy source to boost its ESG profile,” Shaath said.

The release of the quarterly financial results has prompted Shaath to revise some of his financial projections, with the third quarter revenue beat encouraging him to raise his overall 2022 projection from $85 million to $90 million to follow management’s updated guidance. However, he also made reductions to his 2023 and 2024 projections, as he now forecasts $123.3 million in 2023 for a potential year-over-year increase of 37 per cent, followed by a 2024 projection of $141.5 million for a potential year-over-year increase of 14.8 per cent.

From a valuation standpoint, Shaath’s fiscal year-end multiples forecast a drop in the EV/Sales from an expected 5.4x in 2022 to a projected 4x in 2023, then to a projected 3.5x in 2024.

Meanwhile, Shaath now projects a $9.2 million adjusted EBITDA loss for 2022 before a positive turn in 2023 at a projected $5.9 million for a 4.8 per cent, followed by $11.6 million and a margin of 8.2 per cent in 2024.

Shaath introduced an EV/adjusted EBITDA multiple for the 2023 fiscal year at 82.8x, which he expects to drop to 42.1x in the 2024 fiscal year.

Nanoxplore’s stock price has taken a 45.6 per cent dive in 2022 to this point, starting with an early peak of $6.28/share on January 5 before dropping as low as $2.55/share on May 11. At press time, Shaath’s new $6.00 target represented a projected one-year return of 92 per cent.