Nanalysis Scientific has a 211 per cent upside, says Echelon

Echelon Capital Markets analyst Stefan Quenneville kept a “Buy” rating and $1.90 target price on Nanalysis Scientific (Nanalysis Scientific Stock Quote, Charts, News, Analysts, Financials TSXV:NSCI) in a Friday report to clients. Quenneville said the company is showing strong sales growth and should be maintaining that trajectory going forward.

Calgary-based Nanalysis, which makes portable nuclear magnetic resonance (NMR) and magnetic resonance imaging (MRI) machines for industries including pharma and biotech, chemical, security and food, announced on Thursday its fourth quarter and full-year 2022 results. 

Revenue was up 42 per cent year-over-year for the Q4 to $7.2 million, including $5.9 million in product sales and $1.3 million in services revenue. The net loss was $3.3 million.

Over the quarter, Nanalysis started providing services for its CATSA airport security contract, a six-year $160 million service and maintenance contract first announced last May. Nanalysis said it’s currently continuing its phase-in plan and by the end of the first quarter 2023 it had a presence in 39 airports.

“We are laser focused on completing the roll out of the CATSA airport service contract to full run rate at all 81 Airports,” said CEO Sean Krakiwsky in a press release. “With the launch of the full systems at ENC in Monterrey California last week, we look forward to and will continue to work towards the initial sales of the full multi-module high-field NMR product via Quad Systems.”

Commenting on the Q4 results, Quenneville said the $7.2 million topline compared to his estimate at $6.9 million, while gross margins dropped significantly from 60.9 per cent a year earlier to 22.1 per cent, where Quenneville had been forecasting 45.0 per cent. The analyst said delays with the CATSA rollout and increased costs associated with its manufacturing workforce were part of the issue. 

On Q4 EBITDA, the company went for a loss of $2.6 million compared to Quenneville’s estimate at negative $0.5 million.

“We expect gross margin to normalize in the back half of 2023 as the CATSA airport security project is phased-in to full capacity,” Quenneville wrote.

“While we expect the next couple of quarters to be bumpy given the ongoing CATSA challenges, the Company’s impressive longer-term growth trajectory remains intact. As such, we continue to view Nanalysis as meaningfully undervalued relative to peers, especially given the recent weakness in stock price,” he said.

By the numbers, Quenneville is now calling for Nanalysis’ revenue to go from $24.8 million in 2022 to $45.4 million in 2023 and for EBITDA to go from negative $3.9 million in 2022 to negative $2.4 million in 2023. 

At press time, Quenneville’s maintained $1.90 target represented a projected return of 211 per cent.