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Nanalysis Scientific has target cut by Echelon

Disappointing quarterly numbers have Echelon Capital Markets analyst Stefan Quenneville more cautious on the upside potential over the next 12 months for Nanalysis Scientific (Nanalysis Scientific Stock Quote, Charts, News, Analysts, Financials TSXV:NCSI). In a Friday report, Quenneville reiterated a “Buy” rating on the stock while lowering his target from $1.90 to $1.40 per share, which at press time represented a projected one-year return of 137 per cent.

Shares of Nanalysis Scientific were down a full 27 per cent in trading on Friday as the market reacted to its Q1 2023 results, announced on Thursday. The company, which makes nuclear magnetic resonance (NMR) and magnetic resonance imaging (MRI) products for industries including pharmaceutical, security, biotech, chemical, food and education, posted revenue down 16 per cent year-over-year to $4.7 million. The breakdown was $3.0 million in product sales and $1.6 million in services.

“We planned and expected K’Prime’s CATSA airport security contract and Quad’s revenue to be modest in the quarter as those business lines are in the early stage of roll out, but we underperformed on the rest of our business segment revenues, particularly in Benchtop NMR,” said founder and CEO Sean Krakiwsky in a press release.

“Management is not satisfied with this overall financial result and has taken corrective action as identified below. That being said, I remain confident about the Company’s prospects and long term vision,” he said.

Looking at the results, Quenneville said the $4.7 million topline was a significant miss of his estimate at $7.8 million and he pointed to an unexpected drop in the Benchtop NMR segment (down 37.6 per cent year-over-year) as a prime issue.

The analyst said the roll-out of its CATSA service contract is being bumpy but remains on track to be cash flow positive by the fourth quarter of the current year, while the company’s recent equity raise and improved credit facilities have helped bolster the balance sheet.

“Given the sizeable miss and the poor visibility on the near- term growth outlook, we are lowering our price target to $1.40 (from $1.90). We are maintaining our Buy rating given the Company’s promising long-term prospects, however, we believe that the stock will likely remain in the penalty box until growth in the base NMR business is re-established and the CATSA contract is running profitably,” Quenneville wrote.

Quenneville’s forecast calls for NSCI’s revenue to go from $24.8 million in 2022 to $34.7 million in 2023, while EBITDA is expected to go from negative $3.9 million in 2022 to negative $6.5 million in 2023.

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