A slight miss in its recent quarter doesn’t really sully the strong overall growth on display by Nanalysis Scientific (Nanalysis Scientific Stock Quote, Charts, News, Analysts, Financials TSXV:NSCI). That’s according to Echelon Capital Markets analyst Stefan Quenneville, who reviewed the results in a Tuesday report to clients. Fresh off announcing a big multi-year contract with the Canadian Air Transportation Security Authority (CATSA), Nanalysis Scientific, which sells compact nuclear magnetic resonance (NMR) spectrometers and magnetic resonance imaging equipment to, among others, the Pharma and Biotech, Chemical, Security and Education industries, delivered its first quarter 2022 financials on Tuesday. The company reported consolidated revenue of $5.6 million compared to $2.3 million a year earlier and a net loss of $1.5 million compared to a loss of $467,000 a year ago. "We are happy to have carried the momentum from the fourth quarter into the new year and first quarter," said Sean Krakiwsky, Founder and CEO of Nanalysis, in a press release. ”The fourth quarter is our strongest quarter of the year, as I expected it to be in 2022. We showed sequential increase in revenue from Q4 to Q1, which is a positive signal for our company for the rest of 2022. As seen with our recent service contract win, we are beginning to achieve synergies from the specific M&A transactions we have completed, I'm proud to say we have diversified our product and service offerings while continuing to drive towards our vision." The $5.6 million topline came in a little under Quenneville’s call for $6.0 million, while gross margin at 60.2 per cent was broadly in-line with the analyst’s expectations. EBITDA of $0.2 million was also below Quenneville’s estimate at $0.8 million, with the earnings miss chalked up to higher-than-expected general and administrative costs, including costs associated with the acquisitions of K’(Prime) and Quad Systems in the quarter. EPS for the Q1 was negative $0.02 per share compared to Quenneville’s estimate at $0.00 per share. “Nanalysis reported Q122 results that, despite showing strong growth, came in slightly below expectations. Nevertheless, with the Company’s recently announced six-year, $160 million service and maintenance contract win with the Canadian Air Transportation Security Authority (CATSA), we remain confident that Nanalysis will maintain its impressive growth trajectory and continue to view it as meaningfully undervalued relative to peers,” Quenneville wrote. Quenneville noted that Nanalysis continues to successfully deal with economy- and industry-wide supply chain issues, with the company ending the Q1 with its largest-ever inventory balance in order to avert future supply chain issues and allow for the conversion of its instrument backlog to sales. On the CATSA contract — for six years and $160 million for service and maintenance for K’(Prime) — Quenneville called it a game-changer. The analyst expects the contract to add about $2 million in revenue and about $0.4 million in EBITDA (for about a 20 per cent margin) over the second half of 2022 during the ramp-up period, adding about $15 million in revenues in 2023 and about $27 million annually thereafter with a stable EBITDA margin of between 20 and 25 per cent. “Management notes that it is common for these types of contracts to be renewed for an additional five years, making this six-year contract a potential 11-year recurring revenue opportunity. Overall, we view this contract as a meaningful strategic coup for the company, that will provide it with a strong, stable, and recession-proof source of cash flows that can be used to support and accelerate the growth of its core NMR business,” Quenneville said. Quenneville’s forecast has Nanalysis Scientific going from revenue and EBITDA of $16.0 million and $1.9 million, respectively, in 2021 to revenue and EBITDA of $37.7 million and $5.7 million, respectively, in 2022. The stock spiked on the CATSA announcement, helping NSCI out of a skid over much of May, and aside from a few ups and downs shares are still well into the black for the past 12 months with a return of about 102 per cent. Quenneville sees further upside to the name, reiterating in his report a “Buy” rating for NSCI and $3.25 target price, which at the time of publication represented a projected one-year return of 160 per cent. Quenneville derives his target from a valuation multiple of 8x his 2022 EV/Sales estimates, which the analyst says is above the broader scientific instrument peer group which has dropped from the 8x range in recent months. Quenneville said the reason for his optimism stems from NSCI’s higher expected growth and the impact of recurring revenues from the CATSA contract. “We continue to view the Company as meaningfully undervalued, trading at 3.1x 2022 EV/Sales versus peers at 5.2x,” Quenneville wrote.