Rising Global Demand For Faster, Safer Assay Solutions Will Drive Strong Long Term Upside

Catalysts

About Chrysos

Chrysos commercialises PhotonAssay technology to deliver faster, more accurate and more efficient assay solutions to global mining customers.

What are the underlying business or industry changes driving this perspective?

• Rapid global adoption of PhotonAssay, evidenced by 46 percent revenue growth and Americas revenue rising 138 percent, suggests a long runway for unit deployments and higher recurring MMAP revenue over time.
• Expanding into new high grade mining regions such as Chile and Suriname with blue chip partners like Bureau Veritas and Newmont broadens the installed base and should lift both revenue scale and earnings resilience.
• Rising demand for faster, non destructive and environmentally safer assay methods across the mining sector supports sustained utilisation of PhotonAssay units, driving incremental additional assay charges and lifting overall revenue yield per unit.
• Improving unit economics from hubbing, in house maintenance, and stabilising support functions is already lifting EBITDA margins from 20 percent to 24 percent and should support further net margin expansion as the fleet grows.
• Deployment of the next generation XN unit, with lower install and maintenance costs and simpler operation, is poised to reduce direct costs per unit and capital intensity, improving free cash flow conversion and long term earnings power.

Assumptions

This narrative explores a more optimistic perspective on Chrysos compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Chrysos's revenue will grow by 39.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -12.4% today to 17.0% in 3 years time.
• The bullish analysts expect earnings to reach A$30.5 million (and earnings per share of A$0.26) by about December 2028, up from A$-8.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$13.7 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 48.0x on those 2028 earnings, up from -103.8x today. This future PE is greater than the current PE for the AU Professional Services industry at 20.8x.
• The bullish analysts expect the number of shares outstanding to grow by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.88%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• PhotonAssay unit economics depend heavily on mining exploration activity and assay volumes. A prolonged downturn in gold prices or a structural shift to lower exploration budgets could reduce MMAP growth and materially weaken revenue and EBITDA expansion over time, directly impacting earnings growth.
• The strategy to expand aggressively into new regions, such as Chile and Suriname, requires additional head count, advisory costs and potentially new language specific support. If deployment or utilisation in these regions lags expectations, fixed indirect costs could outpace revenue and compress net margins.
• Although PhotonAssay unit gross margins are currently in the 70 to 80 percent target range, long term competitive pressure or customer bargaining power could force pricing concessions on MMAP and additional assay charges. This could erode gross margin and ultimately reduce the company’s ability to grow earnings at the forecast pace.
• The business model is capital intensive, with around 4 million dollars per unit and 400 thousand dollars of spares. If cash collections remain stretched or working capital continues to build with rising receivables, the company may need to take on more debt or equity than planned, diluting shareholders and weighing on cash flow based valuation and earnings per share.
• International tax complexity has already resulted in a 5.3 million dollar tax expense and timing differences on recognizing 3.6 million dollars of tax benefits. If future cross border tax rules or enforcement become less favorable, ongoing tax outflows could be structurally higher than assumed, suppressing net profit margins and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Chrysos is A$10.0, which represents up to two standard deviations above the consensus price target of A$8.62. This valuation is based on what can be assumed as the expectations of Chrysos's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$10.0, and the most bearish reporting a price target of just A$6.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be A$178.8 million, earnings will come to A$30.5 million, and it would be trading on a PE ratio of 48.0x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of A$7.33, the analyst price target of A$10.0 is 26.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.