NEO Performance Materials is heading back to $25, says Paradigm

Neo Performance Materials (Neo Performance Materials Stock Quote, Charts, News, Analysts, Financials TSX:NEO) is currently hitting multi-year lows, but investors will want to own a piece of this player in the EV battery market, according to Paradigm Capital analyst J. Marvin Wolff. In an update to clients on Monday, Wolff reiterated a “Buy” rating on the stock and 12-month target price of C$25.00, which implied at the time of publication a projected return of 173 per cent.

Vancouver-based Neo Performance is a supplier of rare earth materials, magnetic powders and magnets for a number of markets, including the auto industry. The company announced on Monday the acquisition of an exploration license on the Sarfartoq rare earth deposit in Greenland from Hudson Resources. The package includes an exploration license and exclusive mining rights.

Neo Performance said it’s now mobilizing drilling crews and verifying previous data, with an updated preliminary economic assessment (PEA) to be issued next year.

“Neo continuously pursues supply chain optionality in order to ensure that our customers have a dependable supply of engineered rare earth products,” said NEO CEO Constantine Karayannopoulos in a press release.

“Once in production, this project will significantly increase the diversity of global rare earth supply for our processing facilities around the world.  It also is another step in our Magnets-to-Mine vertical integration strategy,” he said.

Wolff said NEO is currently involved in developing at least five separate rare earth supply sources and the company should have no problem getting as much Western-based rare earth material as it needs.

“NEO is busy creating totally new Western world rare earth supply links as customers are requiring non-Chinese material in their spec sheets wherever possible,” Wolff wrote.

“The company benefits from a proven and seasoned management team capable of paving a path to take EBITDA to over $150 million over a three to five-year period. We are of the view that the shares offer uncommon value at these levels and should benefit from a multiple expansion along with the higher profitability as a strong participant in the EV growth curve,” he said.

Looking ahead, Wolff is forecasting NEO to generate $631.0 million in revenue in 2023 compared to $640.2 million in 2022 and moving to $685.0 million in 2024. On EBITDA, the forecast is for $58.9 million in 2023 compared to $79.0 million in 2022 and moving to $94.5 million in 2024. Further out, Wolff has NEO hitting $925 million in revenue by 2026 and EBITDA of $154 million. (All figures in US dollars except where noted otherwise.)