5N Plus keeps Buy rating with Laurentian Bank

Look for better-than-expected third quarter sales from critical materials company 5N Plus (5N Plus Stock Quote, Charts, News, Analysts, Financials TSX:VNP), according to Laurentian Bank Securities analyst Nick Agostino, who delivered an action note to clients on Thursday where he renewed a “Buy” rating on the stock. Agostino said last year’s acquisition of Azur Space should be a big contributor to 5N’s growth.

A producer of specialty metals and chemicals, Montreal-based 5N Plus made a transformational acquisition in April, 2021, of Belgian chemical company MCP, helping to assert 5N as a global refiner of commercial and ultra-high purity metals and compounds for industries such as pharma, electronic, industrial and solar. By material, 5N is the world leading supplier of bismuth and a leader in gallium, germanium, tellurium and indium.

With the company’s Q3 results due on November 1 after market close, Agostino is estimating revenue of $71.2 million compared to the consensus call at $66.5 million and adjusted EBITDA at $7.8 million compared to the Street’s $8.6 million. (All figures in US dollars except where noted otherwise.)

Agostino pointed to recent contract wins for 5N in the form of a renewal from First Solar and a ten-year contract from Sierra Space with VNP’s Azur division. For the third quarter, Agostino is projecting $14.4 million in revenue contribution from Azur, representing about a 12 per cent organic growth rate.

“As VNP reports in US$ but realizes ~42 per cent of sales from Europe and ~21 per cent from Asia, we note the €/US$ depreciated ~4 per cent since Q2 guidance on August 3 which could result in a ~2 per cent (~US$1.5 million) sales headwind, however, this should be neutral for EBITDA given the company has an international cost base,” Agostino wrote.

“We also note encouraging contract momentum with First Solar (FSLR) and Sierra Space that help backfill our 2023 expectations but offer sales / EBITDA / margins accelerated growth potential starting 2024,” he said.

As for commentary from management, Agostino said he’ll be looking for, among others, updates on solar space contracts and on the company’s backlog and bookings as well as any new partnership prospects which could support revenue growth. The analyst also said he’d like to hear about any impact on VNP’s business related to the global chip shortage as well as guidance on organic growth. 

Looking further afield, Agostino is forecasting full 2022 revenue and EBITDA for 5N of $281.5 million and $30.0 million, respectively, and 2023 revenue and EBITDA of $282.0 million and $31.6 million, respectively. With his “Buy” rating, Agostino also reiterated a 12-month target of C$2.50 per share, which at press time represented a projected return of 22 per cent.