Is Neo Performance Materials stock a buy (June, 2023)?

Paradigm Capital analyst J. Marvin Wolff reported on Neo Performance Materials (Neo Performance Materials Stock Quote, Charts, News, Analysts, Financials TSX:NEO) on Wednesday, saying the company just announced a de-risking funding mechanism. Wolff reiterated a “Buy” rating on the stock and said shares look attractive at current levels.

Neo Performance Materials, the largest producer of neodymium permanent magnet powders used in the auto industry for micromotors and with a potentially large market opportunity in the EV market, announced on June 12 a non-binding Heads of Agreement signed between it and Hastings Technology Metals for the parties to negotiate a binding commercial offtake agreement for the supply of rare earth concentrate from Stage 1 of the Yangibana Rare Earths Project.

Neo said the offtake arrangement for concentrate from the Yangibana Project would provide an additional source of feedstock for NPM Silmet OÜ, Neo’s rare earth separation facility in Estonia.

“This initiative supports Neo’s strategic efforts to continue to globally diversify our sources of rare earth feedstock and to provide our customers with maximum supply chain optionality.  The Yangibana resource is an attractive potential source of magnetic rare earths–NdPr in particular–and it could contribute to meeting the feedstock targets of our planned Estonia magnet manufacturing facility as well as a potential future expansion in North America,” said Neo CEO Constantine Karayannopoulos in a press release.

Neo’s Silmet Sintered Magnet expansion is now fully funded and de-risked, according to Wolff, who said he expects Neo’s traditional business lines to normalize, with the analyst now reflecting the event in his forecast.

Wolff is calling for Neo’s revenue to go from $640.2 million in 2022 to $590.1 million in 2023 and to $645.0 million in 2024. EBITDA is expected to go from $79.0 million in 2022 to $32.6 million in 2023 and to $57.3 million in 2024. (All figures in US dollars except where noted otherwise.)

With his “Buy” rating, Wolff maintained a 12-month target of C$16.00, which at press time represented a projected return of 84 per cent.

“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,” Wolff wrote.