NanoXplore has a 251 per cent upside, says Paradigm

Shares of graphene producer NanoXplore (NanoXplore Stock Quote, Charts, News, Analysts, Financials TSX:GRA) have been slowly inching up over the past few months, but the pace should pick up over the next year, according to Paradigm Capital analyst J. Marvin Wolff. In a Friday review of NanoXplore’s recent quarterly numbers, Wolff maintained a “Buy” rating on the stock and $13.75 target price, which at the time of publication represented a projected 12-month return of 251 per cent.

Montreal-based NanoXplore is the global leader in the production and commercialization of graphene, a recently discovered nanomaterial which has high heat and electricity conductivity as well as mechanical strength. The company reported its fourth quarter fiscal 2022 financials on Thursday for the period ended June 30, 2022, featuring record revenues and, for the first time for the company, positive adjusted EBITDA.

Revenue was up 30 per cent year-over-year to $94.3 million and came in ahead of management’s guidance at $90 million, while adjusted EBITDA of $0.1 million was above last year’s Q4 of negative $2.4 million. The company ended the quarter with cash and equivalents of $51.2 million and total long-term debt of $9.5 million. 

In the quarterly comments, NanoXplore said the results were very good considering the still unfavourable supply chain issues on a macro scale. 

“Even though inflation in raw material prices and wages are continuing to impact negatively on our business, we are maintaining the quality of our balance sheet and our liquidity while continuing to invest in our graphene commercialization efforts,” said President and CEO Soroush Nazarpour in a press release. 

“We ended 2022 on a strong note with increased sales of graphene-enhanced products along with a strong liquidity position of $58.6 million. Having achieved positive adjusted EBITDA for the first quarter in our corporate history demonstrates the progress in our business. It also points out to our ability to be operationally profitable, under the right market conditions, while we continue to invest in market penetration of graphene and graphene-enhanced products,” said CFO Pedro Azevedo in the release.

Looking at the Q4 and year-end numbers, Wolff said they arrived in line with his expectations, with the 2022 year ending with revenue of $94.3 million, EBITDA at negative $9.1 million and EPS at negative $0.10 per share.

Wolff said that while management doesn’t supply specific graphene tonnage numbers, they did say that production is climbing every quarter as the company not only brings new customers on board but existing accounts are accelerating their volumes. Wolff said the company expects that by the end of 2024 it will be at full capacity and by then will need to expand operations by adding one or more 4,000 tpa graphene plants. Management is expected to release a five-year strategic plan sometime in the next few weeks.

Along with its graphene business, NanoXplore has product development programs in the automotive, battery, thermoplastic compounding and electronic industries and has a joint venture called VoltaXplore which is producing Lithium-ion EV batteries. Altogether, NanoXplore has three business units in graphene production and sales, Battery Materials and VoltaXplore.

On the graphene business, Wolff said NanoXplore has a deep sales funnel where management is expecting 50 clients to sign on for purchase orders over the next 24 months, while in Battery Materials, operations have moved from a pilot stage of producing about 1,000 batteries to the demonstration stage of about 150,000 batteries. 

For his valuation of NanoXplore, Wolff said he is currently assigning value to just the graphene business, as Battery Materials has no supply contracts as of yet and VoltaXplore is still in the formative stages.

“NanoXplore is aggressively developing end-use markets by using graphene as a performance enhancer for a variety of different plastics with many different end products. We expect the company to increase its graphene production from 4,000 tpa to 16,000 tpa by 2025. In addition, we expect its 50 per cent joint venture VoltaXplore will announce plans to build a 2GW battery plant in the next three months,” Wolff wrote.

Wolff has tweaked his estimates after the Q4 numbers and is now expecting NanoXplore to generate fiscal 2023 revenue of $126.8 million (previously $123.5 million) compared to fiscal 2022’s $94.3 million. On EBITDA, he is forecasting $2.9 million for 2023 (previously $13.1 million) compared to 2022’s negative $9.1 million. For fiscal 2024, the call is for $165.8 million in revenue and $35.8 million in EBITDA and for 2025 it’s for a $307.5 million topline and $122.6 million in EBITDA.

“Using a 20x EV/EBITDA multiple and five per cent discount rate (both unchanged), our graphene business target remains unchanged at $13.75. Our valuation of VoltaXplore adds $5.00–$7.25/sh of upside optionality to our current target price (assuming a 2 GW starter plant receives go-ahead approval by the board). We maintain our Buy recommendation,” Wolff wrote.