Nanalysis Scientific wins new coverage at Leede, with $0.90 target

Leede Financial analyst Doug Loe has launched coverage of Nanalysis Scientific (Nanalysis Scientific Stock Quote, Chart, News, Analysts, Financials TSXV:NSCI) with a “Speculative Buy” rating and a price target of $0.90, implying a return of 150% at the time of publication.

Loe notes that NSCI, a maker of portable nuclear magnetic resonance devices, could be close to becoming EBITDA positive.

“Nanalysis operates two distinct businesses in the scientific instrumentation universe, one focused on low-field NMR capital equipment production and the other in security services,” the analyst explained. “Nanalysis currently operates under two divisions, one focused on capital equipment manufacturing and sales that is ostensibly based on the firm’s patented flagship low-field benchtop NMR platforms, branded as 60e, 60Pro, 100e, & 100Pro (the numbers refer to the magnetic field strength in which analytical samples are introduced for chemical structure determination). The second is a services division that going forward will be materially influenced by a new six-year equipment services contract with the Canadian Air Transport Security Authority (CATSA). Since implementation of CATSA-based services commenced, the firm’s quarterly EBITDA has been unambiguously negatively impacted, but we believe that trough EBITDA levels are now in the rear-view mirror and that positive EBITDA trajectory is on the horizon, possibly as early as end-of-FH224.”

Loe thinks NSCI will post EBITDA of $1.39-million on revenue of $44.7-million in fiscal 2024. He expects those numbers will improve to EBITDA of $6.81-million on a topline of $46.1-million in fiscal 2025.

The analyst says investors would be reasonable in expecting more M&A growth from the firm.

“Over the course of the last two years, Nanalysis has engaged in a series of strategic M&A to enhance its existing product offerings while expanding into novel industry verticals including magnetic resonance imaging and software,” he wrote. “Evidence of the firm’s M&A strategy has been reflected in its F2021 revenue growth, effectively doubling its F2020 revenue and with the potential for the CATSA service contract to drive revenue even higher, though with the near-term negative impact on EBITDA that the CATSA contract conferred as operational expense scale-up preceded revenue growth by several quarters, as history has shown. The five-year contract could cumulatively generate up to $160M for Nanalysis, with the potential to be renewed for two additional five-year periods after expiry of the existing contract.”