Buy NanoXplore for an electrification play, says Beacon

Supply chain challenges had their impact on the latest quarterly results from graphene company NanoXplore (NanoXplore Stock Quote, Charts, News, Analysts, Financials TSX:GRA). In a Thursday report on the quarter, Beacon Securities analyst Ahmad Shaath nudged his target price downward on slightly lowered expectations going forward from the company.

Quebec-based supplier of graphene powder and graphene-based solutions NanoXplore delivered this week a five-year strategic plan along with its first quarter fiscal 2023 results, with the company aiming to increase its graphene production by 5x to 20 ktpa by 2027. Management also aims to expand its sheet molding compound capacity by about 6x, with overall revenue potential of $220 million and a capex spend of about $170 million, most of which the company plans on outlaying in calendar 2023.

“Despite being in a tough macro-environment, we are satisfied with the performance of our business,” said President and CEO Soroush Nazarpour in a press release. “Our revenues from customers grew 52 per cent and our gross margin continues to expand on a year-on-year basis based on better graphene-enhanced products.”

“Having said that, supply chain challenges reduced our total expected revenue of this quarter and company-wide wage increase that we applied on July 1, reduced our gross margin. We anticipate to offset the negative impact of supply chain disruption and wage increase with higher graphene sales as our graphene commercialization efforts continues,” he said.

Looking at the fiscal Q1 financials, Shaath said the top and bottom results were below expectations. Revenue of $27.2 million was below his forecast at $29.7 million as well as the consensus call at $28.7 million, while adjusted EBITDA at negative $2.0 million was “well below” Shaath’s forecast at positive $0.3 million and the Street’s positive $0.1 million. Gross margin at 11.9 per cent was also below Shaath’s modelling at 20.1 per cent, while management’s guidance for fiscal 2023 revenue at $110 million was below Shaath’s forecast of $123.3 million and the consensus $125.0 million.

“NanoXplore remains a uniquely diverse play on the critical electrification theme, as well as other sustainability trends (e.g., Concrete, Lightweighting etc.) The company remains in growth mode and thus profitability is not a key focus in the short term,” Shaath wrote.

“In the short term we expect announcements regarding government grants, for both NanoXplore and VoltaXplore, to be key drivers. We revised our valuation methodology to reflect lower multiples, higher interest & discount rates, and the financing assumption we mentioned. Our target price is minimally impacted (now $5.75 versus $6.00 previously). We believe recent pullback represents a great entry point,” he said.

Shaath maintained a “Buy” rating on GRA, while his new $5.75 target represented at press time a projected one-year return of 108 per cent.