Opinions
Stephen Takacsy, B. Eng, MBA
Neo Performance Materials Inc.
NEO-T
BUY
Jan 30, 2023
Stock price when the opinion was issued
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Cannacord reduced their price target for the company today, which could be the reason for recent weakness. The company is cash rich on the balance sheet. Currently trading at 8x earnings. Oversold and could buy today. Unlock Premium - Try 5i Free
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The valuation is attractive at 11x earnings, compared to other mining names. It is a market leader in Canada for rare earth metals. There is an anticipated revenue decline, which is related to commodity prices moderating to lower levels. The company’s revenues are a function of volume and realised price of the metals sold. Unlock Premium - Try 5i Free
Deep value, with potential to triple or quadruple in a few years. Global leader in manufacture of magnets used in micro motors. Highly engineered materials. Well positioned for the EV market. Rare earth prices have come down, and so has the stock to well below tangible book value. Yield is 5.77%.
Very profitable, strong free cashflow, no debt, buys back shares aggressively. Trades at 4x EBITDA. Would not be surprised by an eventual takeover.
(Analysts’ price target is $10.26)
It just announced a strategic review. Are the only public company that turns rare metals into value-added materials like magnets for cars and medical devices. This review will trigger a buyer, he thinks, a positive. Shares are trade well below tangible book value. Little debt and carry a lot of cash. Price of rare metals was depressed but recovering now. He can see them being bought out north of $12-14/share.
NEO is well-positioned as a global supplier of advanced industrial materials, and its strategic partnerships outside of China (Brazil, etc.) allow it to mitigate supply chain disruptions caused by China's restrictions. The restrictions from China could cause rare earth prices to rise, benefiting NEO, and non-Chinese suppliers such as NEO can benefit from increased demand from countries and companies looking to diversify away from China. The uncertainty coming out of China is certainly not welcome for rare earth mineral investors over the near-term, but we think the company can see some positive impacts over the long-term as a result of this decision.
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We think it is somewhat attractive. The balance sheet is fine. The dividend is nice. Good earnings growth is expected and its industry positioning seems secure with China restricting some metals. We would like a better valuation than 24X earnings, but otherwise we would consider it a decent small cap with income.
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He bought, sold and recently bought back shares. ONe of the few companies in the world that can process rare earths into valuable materials for catalytic converters and magnetic motors for EVs. So, there's huge growth ahead. Announced a new plant in Europe to supply Euro car makers. Stock is cheap, albeit with some volatility. It's a way of playing EVs with less risk.