Nanalysis Scientific Corp. (NSCI:TSX.V; NSCIF:OTC; 1N1:FSE) will complete a CA$3.5 million (CA$3.5M) non-brokered private placement to bolster its balance sheet, reported Echelon Capital Markets analyst Stefan Quenneville in an April 24 research note. Based on dilution from the deal, updated estimates, and reduced peer multiples, Echelon lowered its target price on the scientific equipment firm to CA$1.90 per share from CA$2.75.
"Nevertheless, we are maintaining our Buy rating as the company's impressive longer-term growth trajectory remains intact, and the stock price remains significantly undervalued compared to its peers," Quenneville wrote.
Nanalysis' current stock price is about CA$0.60 per share. Though Echelon reduced its target price, the potential return for investors is still significant, at 217%.
Need for Capital
Nanalysis develops, manufactures, and sells compact nuclear magnetic resonance (NMR) spectrometers and magnetic resonance imaging (MRI) equipment.
The Alberta-based company, Quenneville explained, needs capital to fulfill its CA$160M service and maintenance contract with Canada Air Transportation Security Authority (CATSA) to support imaging and other security screening equipment. For instance, Nanalysis has to hire about 120 workers, train staff and get them security clearance and start phasing in operations at Canadian airports, for a total of 80.
With the capital raise, the company plans to issue 5,830,000 units at a price of CA$0.60 per share. Each unit consists of one common share and one warrant, with a CA$0.80 exercise price and a one-year expiration.
The fact that the private placement was just announced suggests the "rollout is progressing more slowly than initially planned," wrote Quenneville. This means the company has likely fallen behind on its original timeline, which was to reach a CA$2M per month revenue run rate and become cash flow positive by mid-2023.
Accordingly, Echelon reduced its estimates for Nanalysis for the next several quarters. For the full-year 2023, its new revenue forecast is CA$45.6M, down from CA$50.9M, and its revised EBITDA projection is (CA$0.4M), reduced from CA$8.5M. Despite the delay and revised estimates, the Nanalysis story remains bright, according to Quenneville.
"We note that this still represents an impressive 86% year-over-year growth," he pointed out.
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