Battery-grade Nickel Output Will Fuel Global EV Expansion

Key Takeaways

• Shifting to high-purity nickel and sustainable practices positions the company to secure premium contracts and outperform peers amid tightening environmental regulations.
  
• Rapid production expansions with effective cost control create strong opportunities for significant long-term revenue and earnings growth in the EV battery supply chain.
  
• Growing industry preference for low-nickel batteries, regulatory pressures, sovereign and financial risks, and increased supply competition threaten profitability and long-term growth prospects.

Catalysts

Engages in nickel ore mining, nickel pig iron, cobalt, and nickel matte production activities.

• Analyst consensus views the ENC commissioning as a significant revenue driver, but this could be materially understated given management's clear indication that margins from HPAL nickel sulfate and cathode products are nearly four times higher than legacy RKEF output, implying an accelerated and sustained uplift in profitability as product mix shifts towards battery-grade nickel.
  
• Analysts broadly agree the Hengjaya quota expansion will boost volumes, but the imminent approval for environmental and feasibility studies suggests further, rapid quota increases with virtually no additional capital requirements, enabling production and EBITDA to potentially double at no incremental unit cost.
  
• Nickel Industries' unique integration with captive Indonesian ore supply and power, combined with its push toward Sampala's billion-tonne resource and coming self-sufficiency at IMIP RKEFs, positions it to outperform global peers as environmental regulations further restrict supply elsewhere and drive higher pricing, directly supporting higher long-term revenues and margins.
  
• The company's operational excellence in safety, sustainability, and biodiversity protection is already delivering repeated top regulatory and social ratings in Indonesia, which not only derisks expansion but also positions Nickel Industries as the preferred partner for Western EV/battery OEMs seeking compliant long-term offtake deals at premium prices, unlocking higher-margin sales contracts.
  
• With HPAL technology consistently delivering EBITDA margins of six to seven thousand dollars per tonne-far above industry averages-and the ongoing expansion of high-purity nickel output, Nickel Industries is set to capture growing demand from electric vehicle battery producers worldwide as supply chain diversification accelerates, driving outsized long-term revenue and earnings growth.

Nickel Industries Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Nickel Industries compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Nickel Industries's revenue will grow by 34.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.4% today to 20.1% in 3 years time.
• The bullish analysts expect earnings to reach $846.2 million (and earnings per share of $0.2) by about September 2028, up from $-162.5 million today. The analysts are largely in agreement about this estimate.
• 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 7.5x on those 2028 earnings, up from -12.2x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 15.5x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Nickel Industries Future Earnings Per Share Growth

Risks

• Accelerating battery technology innovation, especially the market shift toward low-nickel or nickel-free cathode chemistries such as lithium iron phosphate, could undermine long-term growth in nickel demand and depress prices, negatively impacting revenue and profitability for Nickel Industries.
  
• Persistent global regulatory pressures for greener supply chains and lower carbon footprints may require significant capital expenditures for upgrades and compliance, increasing operational costs and eroding net margins.
  
• Heavy dependence on Indonesia for both mining and project expansion exposes Nickel Industries to sovereign risk, regulatory delays (such as environmental study approvals), and potential policy shifts that could inhibit production growth or disrupt operations, thereby threatening future revenue streams.
  
• High financial leverage and ongoing capital commitments, including deferred payments and the need to refinance large tranches of debt, elevate the risk of liquidity constraints, interest expense pressure, and potential earnings dilution if nickel prices remain soft or operating setbacks occur.
  
• Ongoing proliferation of low-cost nickel production (especially in Indonesia) and increasing industry focus on recycling and circular economy initiatives may intensify supply competition and reduce the demand for primary mined nickel over time, resulting in sustained price pressure and lower long-term earnings.

Valuation

• The assumed bullish price target for Nickel Industries is A$1.73, which represents two standard deviations above the consensus price target of A$0.94. This valuation is based on what can be assumed as the expectations of Nickel Industries'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$1.8, and the most bearish reporting a price target of just A$0.65.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $846.2 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of A$0.7, the bullish analyst price target of A$1.73 is 59.4% 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.