Graphene Adoption And New Dry Process Capacity Will Drive Strong Long Term Momentum

Catalysts

About NanoXplore

NanoXplore is a vertically integrated graphene materials company that supplies graphene-enhanced powders and composite solutions to transportation, industrial and energy customers.

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

• Accelerating adoption of graphene in drilling fluids through the CPChem partnership, where early demand is already running ahead of expectations even before formal marketing begins. This supports rapid volume growth, a higher mix of powder sales and expanding gross margins and earnings.
• Modular dry process graphene capacity, funded by the recent equity raise, opens large new end markets such as foams and other high volume applications that were previously inaccessible. This positions NanoXplore for step change growth in revenues and operating leverage as additional modules are deployed against proven demand.
• Ramp up of the Statesville, North Carolina facility and the full rate Club Car contract, with approximately CAD 15 million of annualized sales already at steady state, broadens the customer base beyond heavy transportation and is expected to drive recurring revenue growth and improved asset utilization, boosting gross margins.
• Underutilized but already-installed capacity in Sainte Clotilde and the U.S. network provides built-in operating leverage as transportation demand rebounds and CAD 40 million of awarded programs launch, allowing revenue to grow faster than fixed costs and supporting margin expansion and EBITDA improvement.
• A strong balance sheet and liquidity after the CAD 25.7 million equity financing and RBC credit support enable NanoXplore to scale graphene production and commercial programs ahead of many competitors. This should support top line growth while allowing for rising net margins and cash flow generation over the medium term.

Assumptions

This narrative explores a more optimistic perspective on NanoXplore 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 NanoXplore's revenue will grow by 34.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.0% today to 2.2% in 3 years time.
• The bullish analysts expect earnings to reach CA$6.4 million (and earnings per share of CA$0.04) by about December 2028, up from CA$-10.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CA$2.3 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 319.1x on those 2028 earnings, up from -37.1x today. This future PE is greater than the current PE for the CA Chemicals industry at 14.9x.
• The bullish analysts expect the number of shares outstanding to grow by 6.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness or a structural slowdown in medium duty and heavy duty transportation demand, where NanoXplore’s two largest customers operate, could keep the recently expanded Sainte Clotilde capacity underutilized for longer than expected. This would limit recovery in revenue and constrain gross margin improvement and EBITDA.
• Execution risk around scaling new graphene applications, such as drilling fluids, insulating foams and dry process powders, including slower than anticipated customer adoption or technical setbacks, could prevent the forecasted shift to higher margin powder sales. This would mute net margin expansion and earnings growth.
• Heavy reliance on a small number of large contracts, such as Chevron Phillips Chemical and Club Car, exposes the company to contract, concentration and pricing risk. Any renegotiation, delay or loss of these programs would materially impact revenue visibility, gross margins and cash flows.
• The capital intensity of the growth plan, including multi year CapEx for U.S. expansion and dry process graphene modules funded with a mix of debt and equity, raises the risk that cash flows lag investment. This could dilute shareholders and pressure net income if returns on invested capital fall short of expectations.
• Uncertain macroeconomic conditions and volatile customer forecasts, particularly in cyclical transportation end markets, increase the chance that the projected second half fiscal 2026 rebound is pushed out. This would extend the period of lower capacity utilization, suppress revenue and delay a return to consistent positive earnings.

Valuation

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

• The assumed bullish price target for NanoXplore is CA$7.78, which represents up to two standard deviations above the consensus price target of CA$3.83. This valuation is based on what can be assumed as the expectations of NanoXplore'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 CA$8.15, and the most bearish reporting a price target of just CA$2.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be CA$289.7 million, earnings will come to CA$6.4 million, and it would be trading on a PE ratio of 319.1x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of CA$2.19, the analyst price target of CA$7.78 is 71.9% 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.