Research Capital Corporation analyst Yue Ma is feeling positive about Nanalysis Scientific (Nanalysis Stock Quote, Chart, News TSXV:NSCI), initiating coverage on October 25 with a “Speculative Buy” rating and target price of $1.90/share for a projected return of 43 per cent.
Established in 2009 and headquartered in Calgary, Nanalysis Scientific Corp. is a vertically integrated global scientific instrument manufacturer that develops and markets proprietary benchtop nuclear magnetic resonance (NMR) systems and magnetic resonance imaging (MRI) consoles, as well as providing software solutions for MR data analytics and management.
Nanalysis targets multiple markets, including food, pharma/biotech, chemical, academic research, security/forensics, petroleum, and education. The company conducts direct sales in Canada, the United States, and Europe, then relies on a network of local distributors to sell its products in an additional 40 countries including China, the United Kingdom, Japan, France, Indonesia, and Chile.
The company has also built up a list of over 900 partners including Bosch, Dupont, Hitachi, 3M, Bristol-Myers Squibb, Eli Lilly, Albemarle, the U.S. Department of Homeland Security and the United States Navy, among others.
NMR is a chemistry analytic technique applied across multiple industries, and with time, the NMR systems have gotten more portable. In 2019, Nanalysis introduced its 100 MHz benchtop NMR system, a more cost-effective, accessible and portable alternative to the conventionally heavier and more expensive systems, with Ma noting that the benchtop system can achieve the strongest magnetic field (the stronger the field, the higher the analytic sensitivity) among all benchtop NMRs commercially available, putting Nanalysis on track to becoming the global leader in the field.
“We believe Nanalysis’ products should offer end users a cost-effective, accessible and automatable alternative option with reliable accuracy in that they are essentially miniaturization of conventional NMRs,” Ma said. “Due to these advantages, we also believe benchtop NMRs should proliferate the use of NMR spectroscopy. Investors should note Nanalysis’ methodology to miniaturize conventional NMRs is heavily patent protected – which should have set a high bar for potential competitors looking to enter the space.”
Though the 100 MHz system is a key cog in the company’s proprietary benchtop NMR vertical, it also offers a 60 MHz solution, as well as a flow kit and auto sampler. Nanalysis also drives revenue from NMR and MRI consoles and hyperpolarization accessories, as well as analytics software solutions.
The console segment was driven by the company’s 2020 acquisition of RS2D, a French producer of next-gen electronics for MRI and NMR systems, while the software vertical came courtesy of the company’s acquisition of One Moon Scientific, a New York-based magnetic resonance software company specializing in in a suite of software tools to streamline and automate MR data analysis and management, earlier this year.
In his investment thesis, Ma notes that the company would continue to acquire complementary businesses in the name of expanding its current customer base, enhancing its technologies and capabilities, and enabling it to enter new geographies and verticals.
“Our efforts in 2020 are really bearing fruit in 2021 and we expect to be able to build on this momentum in the back half of the year,” said Sean Krakiwsky, CEO of Nanalysis in the company’s August 26 press release announcing its second quarter financial results. “Strong demand for our 100MHz product, ongoing demand for our 60MHz, and continued interest in the RS2D product line have all contributed to these results. Manufacturing processes continue to be streamlined and standardized, with improvements being integrated into our processes continuously. We expect further increases in 100MHz production capacity in the back half of the year.”
Ma projects a fairly steady growth trajectory for Nanalysis and its products, as he forecasts a near doubling of revenue to $15.1 million in 2021, with $11.1 million coming from benchtop NMR sales and the remainder coming from sales of its RS2D consoles. Ma then predicts the company will begin to see software revenue in 2023 to boost the overall revenue to $27.4 million, eventually growing to account for over 10 per cent of the company’s revenue mix by 2030 at $5.7 million of the projected $52.5 million, with the benchtop NMR vertical still projected to bring in the lion’s share of revenue at $30.9 million.
Meanwhile, with the company’s gross margin expected to settle in at 65 per cent from 2022 onward, Ma projects organic growth for the company through the rest of the 2020s, with gross profit reaching $34.1 million in 2030. He also expects the company to become income positive in 2022 at a projected $925,000, eventually growing to a projected $10.7 million with a 20 per cent margin in 2030.
Overall, Nanalysis’s stock price has risen by 180 per cent for the year to date, having recently reached a high point of $1.52/share on October 29.