European Magnet Expansion And Clean Energy Demand Will Drive Long-Term Upside Potential

Catalysts

About Neo Performance Materials

Neo Performance Materials produces advanced rare earth magnetics and critical materials that enable electrification, clean energy and high efficiency technologies globally.

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

• Ramp up and phased expansion of the new European permanent magnet facility, including Phase 1b, positions Neo to capture accelerating demand from traction motors, EVs and industrial automation in Europe, supporting sustained revenue growth and operating leverage.
• Deepening partnerships with blue chip customers such as Bosch and Schaeffler, alongside a growing funnel of automotive, data center and renewable energy programs, enhances long-term contract visibility and may support higher, more stable earnings and cash flows.
• Rising global focus on supply chain resilience, export controls and localized production for critical materials is pushing OEMs toward Neo’s integrated European separation and magnet platform, which may create pricing power that can support stronger net margins.
• Expansion of higher margin businesses in emission catalysts, wastewater treatment and rare metals recycling, including gallium and hafnium recovery, taps into tightening environmental regulation and may help lift blended segment margins and overall profitability.
• Ongoing automation, data analytics driven efficiency projects and selective capacity additions in facilities like Korat in Thailand are reducing conversion costs per unit, which may expand EBITDA margins and improve return on invested capital as volumes scale.

Assumptions

This narrative explores a more optimistic perspective on Neo Performance Materials 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 Neo Performance Materials's revenue will grow by 7.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.3% today to 8.6% in 3 years time.
• The bullish analysts expect earnings to reach $52.3 million (and earnings per share of $1.17) by about December 2028, up from $-6.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $39.4 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 20.8x on those 2028 earnings, up from -76.5x today. This future PE is greater than the current PE for the CA Chemicals industry at 15.4x.
• The bullish analysts expect the number of shares outstanding to decline by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current demand strength in magnet volumes may be partly driven by customers pulling orders forward and restocking in response to geopolitical tensions rather than purely structural growth. This could later unwind and pressure revenue growth and EBITDA if order patterns normalize or reverse.
• Neo’s expansion plans in European magnets, heavy rare earth separation and additional capacity in Thailand depend on timely, capital-efficient launches and adequate feedstock. Any delays, cost overruns or suboptimal utilization could erode operating leverage, compress net margins and weigh on long-term earnings growth.
• Normalization of rare metals pricing, as already seen with hafnium where margins declined sharply from prior highs, highlights the risk that future commodity price corrections or less favorable pass-through dynamics could reduce segment profitability and drag on consolidated net margins and earnings.
• While public policy and export controls are currently tailwinds for localized supply chains, changes in industrial policy, trade restrictions or subsidy frameworks in Europe and other regions could weaken Neo’s competitive advantage. This could reduce pricing power and limit future revenue and EBITDA expansion.
• Neo’s reliance on major automotive, industrial and technology OEMs for large, technically demanding, multiyear programs means that slower EV adoption, weaker capital spending in AI data centers or delays in customer platform launches could dampen long-term volume growth. This could constrain revenue scale and the anticipated uplift in earnings.

Valuation

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

• The assumed bullish price target for Neo Performance Materials is CA$29.91, which represents up to two standard deviations above the consensus price target of CA$24.31. This valuation is based on what can be assumed as the expectations of Neo Performance Materials'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$29.91, and the most bearish reporting a price target of just CA$20.96.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $611.6 million, earnings will come to $52.3 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of CA$16.19, the analyst price target of CA$29.91 is 45.9% 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.