14-June-2020:  Morgans:  Novonix:  Fully charged for now

Morgans now have a "HOLD" call on NVX (previously SPECULATIVE BUY) and a A$1.09 Target Price (TP).  NVX closed at 99.5 cps yesterday, but closed down -8.54% (8.5 cps lower) at $0.91 today, suggesting their is almost +20% upside from here if Morgans are correct and NVX do reach $1.09.

Main points:

• NVX has raised of $5.7m and will also raise another $52m - $57m from existing shareholders and the StBaker Energy Innovation Fund (SBEIF).
• The new capital will be used to repay debt and expand synthetic graphite production capacity to 2ktpa.  
• NVX’s first graphite customer, Samsung SDI, has shown impressive sales growth of 58% yoy in 1Q20.  
• NVX has filed another patent related to its Dry Particle Microgranulation (DPMG) technique which targets cathode production.  
• We update our rating to HOLD and reduce our price target to $1.09.

Details:

Cashed up with new equity

NVX raised $5.7m from institutional investors and will add another $52m - $57m from SBEIF and other existing shareholders. The cash will be used to pay down debt, R&D and to expand synthetic graphite production capacity. NVX intends to grow its capacity to 2,000tpa by the end of CY21 at its Chattanooga facility using some of the funds raised recently. Shares on issue will increase to between 331.7m – 348.0m depending on the takeup of the entitlement offer to existing shareholders and SBEIF.

Strong sales growth at Samsung SDI highlights market growth

NVX’s first synthetic graphite customer, Samsung SDI, is experiencing continued strong growth in its large lithium ion battery business. In its 1Q20 earnings release, the company showed 58% sales growth compared 1Q19. The company has been growing sales to both the automotive and energy storage makers. We also note the impressive amount of capacity expected (38GWh operating / 50GWh announced) in the US market by a number of battery companies which NVX is readily placed to service.

Changes to our base case forecast

We have updated our forecasts for the PUREGraphite business (PG), the balance sheet of NVX and the number of shares outstanding. In our base case model, PG is the major driver of earnings growth. In its recent investor presentation, NVX lifted its long-term growth target from 75ktpa of synthetic graphite up to 100ktpa which we have incorporated in our base case. We also update a number of other assumptions (detailed later in this note). Our valuation has increased in dollar terms but is reduced in terms of dollars per share to $1.09.

Share price rerates on confidence in growth potential

The rally is NVX’s share price has been impressive and we believe the company is now being seen as a credible early stage player in the battery supply chain. We still see a lot more potential in the recently patented DPMG technology and in the ramp up of PG. However, we also acknowledge that there are still significant risks to NVX achieving its growth plans despite our increased confidence in the company. We think it’s prudent to see how the company performs on its contract with Samsung and in developing other customers. We therefore update our rating to HOLD and suggest that it’s worthwhile for early investors to take some profit. We have also considered bull ($1.59 per share) and bear case ($0.50 per share) scenarios detailed further in the note. 

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Disclosure:  I do not hold NVX shares.

07-Apr-2020:  Morgans: Novonix: Breathing room to deliver on the first contract

Highlights:

Breathing room to deliver on the first contract

• NVX announced that despite a two week closure of its Tennessee manufacturing plant work continues uninterrupted on R&D and its Battery Testing Services (BTS) segment.
• BTS performed solidly in HY20 with segment revenue increasing by $2m on pcp.
• NVX is adequately funded in the near term with $5m raised in debt funding.
• The key focus over the next six months will continue to be manufacturing 500t of battery anode for Samsung under the initial sales contract.
• We reduce our target price to 82cps but maintain our SPECULATIVE BUY rating.

COVID-19 to cause two week delay to Chattanooga commissioning:  The Governor of Tennessee has issued an order for non-essential services to close which will stop on-site commissioning activity at the Chattanooga battery anode manufacturing facility. NVX says that its staff will work from home to continue with desk-top work in a range of areas including quality assurance, engineering, procurement and marketing.

BTS performing better than we’d hoped:  At the half year result, NVX reported revenue of $2.7m. This is a much better result than we’d assumed (+$1m on our segment forecast). While the BTS segment is unlikely to grow to be a significant cash producing asset it enables engagement with potential customers in the supply chain and helps contribute cash while the battery anode business ramps up. Additionally, BTS also engages key research staff who are critical to NVX’s ongoing R&D program to develop the next generation of battery technology.

Adequately funded to meet first customer demand:  The $5m in debt funds raised in March should be enough for the company to complete commissioning at the Chattanooga plant and build inventory to fulfill its initial customer contract. The battery anode contract with Samsung is for 500t with deliveries commencing in 1H21. On completion of that contract we anticipate NVX will work towards securing longer term orders with potentially increased volume. Expansion will require additional debt and equity though to step up capacity from the currently committed 500tpa plant. It is crucial for NVX to continue to be able to access additional capital as required until it can grow to a sufficient size to be self-funding.

Strong growth theme but still speculative:  NVX has worked hard to get its foot in the door of the electric vehicle supply chain. The initial contract with Samsung and the collaboration with Sanyo show that NVX is becoming a credible industry player and is well positioned for significant growth. While we think the company can deliver on its promises we note that there are significant risks on the road to success. NVX still needs to prove it can reliably deliver its product at higher throughput and that it can scale up its production while keeping both operating and capital expenditure at a profitable level. Weakness in the oil market is likely to make feedstock chemicals cheaper for a while but petcoke prices have been historically volatile. We have also increased our assumption for capital intensity which reduces our target price to 82cps but we retain our SPECULATIVE BUY recommendation.

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31-Oct-2019:  Morgans:  Novonix - Time to pause until funding is clearer 

Morgans have a "HOLD" call (previously "SPECULATIVE BUY") on NVX and a 65 cents PT.  NVX closed at 56 cents on Friday (Nov 1).

Main Points:

• NVX has exhibited strong performance in anticipation of its first customer contract for its synthetic graphite product and is near our target price.
• The company is forecast to spend $2.7m commissioning its first 500tpa of production capacity this half which will likely mean the company will need to seek funding.
• Following successful product trials NVX’s synthetic graphite anode material has been approved for use by two major battery manufacturers and second stage trials are underway with other potential customers.
• We change our rating to HOLD and maintain our 65cps price target.

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