Beacon Securities Update and Upgrade to $6.00NanoXplore (GRA-V) Raising TP as Sales Efforts Gather Momentum With Two New Agreements
June 25, 2021 Ahmad Shaath, CFA, MBA (416) 507-3964 ashaath@beaconsecurities.ca NanoXplore announced two new multi-year supply agreements over the last two weeks. We view the agreement with Brazilian steelmaker Gerdau of particular significance as it a) Expands GRA’ presence into a new vertical (construction materials) and b) adds a new multi-billion partner with significant presence in the Americas. Given the added diversification to GRA’s sales pipeline, we reduced the discount rate we apply to our vlauation base (FY23E EBITDA) to 5% (from 10% previously) and increased our mutliple to 20x (from 17x previously). Our new target price is $6.00 (was $5.00). BUY.
Agreement with Gerdau Proves Graphene’s Versatility and Adds a New Vertical. NanoXplore announced a multiyear supply and distribution agreement with Gerdau Grafeno LTDA, subsidiary of Brazilian steelmaker Gerdau (GGBR4- BR, not covered). Gerdau recently founded its graphene subsidiary, following a four year period of researching the material, to focus on expanding into other industrial markets. The company will leverage its exisitng relationships to market and distribute graphene-enhanced products in industrial applications with initial focus on concrete, which complements its main buisness in long steel. Gerdau is ~US$12 billion enterprise value company with annual sales north of US$11 billion. The company is aiming to utilize graphene’s exceptional strength-enhancing characteristics to improve performance of concrete products.
Solidifies its Position in Plastics and Polymers with Agreement with Techmer. On June 16th, NanoXplore announced a multiyear agreement to supply graphene powder (GrapheneBlack) to Techmer PM. Techmer has 40 years of history in technical polymers and additives that are suitable for all of plastics manufacturing methods (injection molding, blow molding, extrusion etc). The company provides advanced additives, custom colours, custom and engineering compounds. Techmer’s cusomters and end applications span a vast array of verticals (16 in total as per the company’s website) that include automotive, military, medical, electronics and food packaging to mention a few. The company will be looking to leverage graphene’s strength and conductivity to improve performance of recycled resins, reduce weight of certain products and enhance barrier effectiveness and chemical resistance of certain products. The company will have cusomter-exclusivity in certain markets/applications.
Additional Supply Agreements, Catalysts to Come from VoltaXplore and M&A. GRA is Nicely Positioned For Strong 2H/CY21. NanoXplore will be commissioning the demo plant for its battery materials program (VoltaXplore JV) in Q4/CY21. Catalysts could potentially come earlier in the form of additional partners joining the JV and awards of government grants. GRA is also looking to conclude further acquisitions to expand into new verticals and/or add manfucaturing capabilities. We expect graphene sales momentum to continue over the following months as NanoXplore bolstered its reputation in the marketplace with the agreements with Techmer and Gerdau. Agreements that add new verticals/applications will be of particular significance to the story as it adds further credibility to a) graphene’s commercial credentials as a true “wonder” material and b) GRA’s position as the leader in graphene commercializing. Given the added diversification to GRA’s sales pipeline, we reduced the discount rate we apply to our vlauation base (FY23E EBITDA) to 5% (from 10% previously) and increased our mutliple to 20x (from 17x previously). Our new target price is $6.00 (was $5.00). We note that our DCF valuation, which is more reflective of GRA’s long-term potential, yields $23.50 per share value using conservative assumptions (ASP $10 per kg, 12,000 tpa, 10% discount rate, 3% terminal growth rate). BUY.