Nanalysis Scientific has a huge upside, says Echelon

The third quarter was a return to form for Nanalysis Scientific (Nanalysis Scientific Stock Quote, Charts, News, Analysts, Financials TSXV:NSCI), according to Echelon Capital Markets analyst Stefan Quenneville, who reviewed the company’s latest financials in an update to clients on Tuesday where he reiterated a “Buy” rating on the stock and $2.75 target price.

Calgary based Nanalysis Scientific, which makes and sells compact nuclear magnetic resonance (NMR) spectrometers and magnetic resonance imaging equipment for a number of industries including pharmaceutical, biotech, chemical, security and food released its Q3 results on Tuesday. The company came in with $6.9 million in consolidated revenue, up 106 per cent year-over-year, and a net loss of $2.6 million compared to a loss of $857,000 a year earlier.

Management said it had resolved the issues that slowed growth in its core benchtop NMR sales over the second quarter and it said strong numbers should come in the fourth quarter, as well.

“We continue to focus on growing all segments of our organization and executing on our operational strategy. In the third quarter we laid significant groundwork on our previously announced multi-year airport security contract with the Canadian Air Transportation Security Authority and have now begun operations on that project in the fourth quarter,” said Sean Krakiwsky, Founder and CEO, in a press release.

Looking at the Q3 results, Quenneville said the financials were largely a non-event, as Nanalysis had pre-announced its third quarter topline in October. Nonetheless, sales of $6.9 million were above Quenneville’s forecast at $6.6 million and EBITDA at negative $0.6 million was a little more than Echelon’s call at negative $0.1 million. 

Quenneville said the earnings miss related to the company’s gross margin falling to 43 per cent from 62 per cent in the previous quarter, along with higher costs attributable to ongoing supply chain issues and inflation. The analyst said the margins aren’t expected to bounce back immediately but that investments in manufacturing and increased capacity to produce key components in-house should result in better margins over the medium to long term.

“While the Company returned to its impressive historical revenue growth following a challenging and anomalous Q2, gross profit and EBITDA were below our estimates due to one-time and transient costs primarily associated with training personnel as it phases in the CATSA contract,” Quenneville said.

“We continue to view Nanalysis as meaningfully undervalued, trading at 1.3x 2023 EV/Sales, versus peers at 5.4x,” he said.

Up ahead, Quenneville is expecting full 2022 revenue of $26.3 million and EBITDA of negative $1.7 million, followed by 2023 revenue of $50.9 million and EBITDA of $8.5 million. At press time, Quenneville’s maintained $2.75 target represented a projected one-year return of 257 per cent.