Tons of upside to NanoXplore, says Paradigm

Paradigm Capital is staying bullish on Canadian graphene producer NanoXplore (NanoXplore Stock Quote, Charts, News, Analysts, Financials TSX:GRA), with Paradigm analyst J. Marvin Wolff providing an update on the company on Monday. Wolff reiterated a “Buy” rating, saying even his most conservative model on GRA has the stock at more than a double over the next 12 months.

The global leader in producing graphene, NanoXplore is currently commercializing the relatively new material and expanding its market as graphene finds its way into more corners of the economy. NanoXplore reported on its five-year strategic plan last month, saying it’s aiming to increase capacity by a factor of five over the next five years, which would bring its annual capacity to 20,000 tons. Further, along with making inroads in the battery materials space, NanoXplore said it will expand its Sheet Molding Compound-forming capacity to target the lightweight materials market.

“Our strategy is to narrow the scope of our funnel and focus on the highest probability of success and high-volume graphene powder applications. Accordingly, we are announcing a significant increase in our graphene and battery materials production capacity,” said President and CEO Soroush Nazarpour in a press release.

Commenting on the strategic plan, Wolff said it makes for a catalyst-rich scenario going forward for NanoXplore. The analyst noted four potential catalysts: advances on its joint venture battery program, VotaXplore, including the financing package, plant site, customers and 2 GW timeline; long lead items for the company’s 12,000 tpa plant; long lead equipment orders for expanding its existing 4,000 tpa Montreal plant; and equipment order placement for expanding its Sheet Molding Compound plant in North Carolina.

“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 20,000 tpa plus 5,000 tpa of SMC by 2026. In addition, we expect its 50% joint venture VoltaXplore will announce plans to build a 2 GW battery plant in the next three months,” Wolff wrote.

With the update, Wolff lowered his top and bottom line estimates for fiscal 2023 and 2024 (year end June 30) and is now calling for 2023 revenue of $118.2 million (previously $126.8 million) and EBITDA of negative $7.4 million (previously positive $2.9 million) and for 2024 revenue of $150.0 million (previously $165.8 million) and EBITDA of $24.4 million (previously $35.8 million).

With the “Buy” rating, Wolff lowered his target price from $13.75 to $10.00 per share, implying a one-year return of 310 per cent. Wolff’s target stems from the mid-point of his 15x and 20x EV/EBITDA estimates and using an eight per cent discount rate (previously five per cent), with the VoltaXplore potentially adding $5.00-$7.25 per share of upside optionality to his current target.

“We note that even at the most conservative (i.e., the lowest) valuation of $5.09/sh, the return would be more than 100 per cent from the current share price,” Wolff said.