SCY could be worth US 1-3 billion in a few years…Today, I was scanning the web for a company like SCY (CMR+HPA), a battery materials company. Here’s what I found:
IBU-tec.
Studying IBU-tec made me realize what a remarkable company SCY is! In the article: ‘IBU-tec is benefiting from rising demand for battery materials to meet the volumes required as transportation moves to electric vehicles (EVs) and battery energy storage systems are deployed to address the variable power output from renewable energy sources. Engagement with a major battery manufacturer in the Far East represents an opportunity to increase its output of battery materials by an order of magnitude. We note that IBUtec’s fortunes are not tied to any one battery technology or supplier.’
https://www.edisongroup.com/wp-content/uploads/2019/09/IBU-tec-Battery-materials-driving-growth.pdf Three interesting observations 1. CMR and HPA combined have a
5 times higher EBITDA margin.
EBITDA margin = EBITDA / REVENUE.
In the article: ‘Management has reiterated its FY19 guidance of
€50–53m revenues and €7.2– 7.5m EBITDA, noting likely performance at the top end of the range. This is based on a substantial increase in sales of battery materials, continued growth in demand…
IBU-tec:
14% (=7.5m / 53m)
From SCY’s corporate presentation we can learn that:
CMR:
- EBITDA=55m,
- REVENUE=80m
HPA:
- EBITDA=45m,
- REVENUE=60m
CMR & HPA:
71% (= (55m+45m)/(80m+60m))
The technologies WD has developed (and patented) to produce those battery materials are extremely low cost and effective!
2. SCY’s
marketcap could be US 1 billion or more, based on CMR and HPA alone!
I used a slightly modified version of the EV / EBITDA metric. EV is Enterprise value; EV is not the same as marketcap, but for simplicity let’s substitute marketcap for EV.
IBU-tec
- Marketcap in September =
70m (see page 1, top-right side)
- EBITDA grew by 41%
to €3.8m, generating 13.7% EBITDA margin (see page 1, middle), and for the full year (in 2019) about
7m (see above) 70m /7m =
10 Now let’s use that multiplier (10 rounded) to project SCY’s future marketcap, based on the given EBITDA. Total EBITDA from CMR & HPA= 100m US
1b = 100m * 10
In the article (page 4, bottom): ‘Umicore, which has invested heavily in capacity for production of cathode materials for lithium-ion rechargeable batteries, is trading on EV/EBITDA and P/E multiples that are above the average for our sample. Consensus forecasts for Umicore also show growth substantially above the average. Similarly, while Varta is not fully comparable, being a battery manufacturer, it commands exceptionally high multiples (
EV/EBITDA=39.8) because of the
stellar sales growth associated with the shift to EVs. This also supports our view that IBU-tec deserves multiples that are
substantially higher than our sample mean, since rising demand for battery materials presents potential for IBU-tec, like Varta, to double revenues relatively quickly.’
I think SCY's growth potential and technology a far superior to IBU-tec's, and hence the
market cap of > 1 billion US (> 1.3 billion CAD).
But wait until you read my next observation... 3. IBU-tec’s
share price has tripled in 2 years, but not its EBITDA!!!!
It stayed the same. In September 2019 the share price spiked to EUR 16.70, and the average for 2019 was about 15 Euro’s. Today it’s trading at EUR 45.90.
Its marketdap is now 217m https://www.dgap.de/dgap/News/adhoc/ibutec-advanced-materials-ibutec-expects-growth-sales-between-eur-and-million-and-ebitda-margin-between-and-percent/?newsID=1419195 In the article: 'Weimar, January 25, 20201 - IBU-tec advanced materials AG ("IBU-tec", ISIN: DE000A0XYHT5) publishes its forecast for the fiscal year 2021. For the current year, sales are projected to increase to between EUR 37 and 39 million. The EBITDA margin in 2021 is expected to be in a range between 17 and 19 percent.'
We can now calculate the EBITDA = 19% * 39m = 7.4m
Now input this amount in the formula we used above (in observation 2)
217m / 7.4m = 29
Two years ago it was just 10, now it has almost tripled. If we apply this multiplier to SCY's EBITDA of US 100m, we get US 2.9b marketcap