3X Your Money in 2023 with Nanalysis
--
Explosive growth at Nanalysis is happening right now
This Cheese Has Aged
We expected great things from Nanalysis in 2022. In some ways it failed, but in others it exceeded expectations in surprising ways. For the share price, it was a “lost year” where the share price has imploded from $1.30 CAD at the beginning of the year to a current $0.65 CAD as of today, Oct 24, 2022. This isn’t an uncommon tale for growth stocks in 2022, though it feels like Nanalysis with 50% revenue growth in 2022 should have fared better. The tickers are NSCI.v in Canada and NSCIF in the USA.
Like a high end cheese aging for a year before being ready for consumption, Nanalysis has “aged” and is setup for a monster 2023. Revenue should potentially double in 2023 as the company delivers on the promise of its acquisition strategy.
What Does Nanalysis Sell?
Benchtop NMR machines are the biggest product revenue-wise that Nanalysis sells. Think of them as an MRI machine for substances. They help companies determine the chemical composition of a sample. They are used at universities and high tech facilities and in some cases can replace the use of a multi-million dollar high field NMR machine that requires a whole room and regular helium gas refills. Nanalysis benchtop devices at 60 to 200 pounds are light enough to be moved from room to room if necessary. This segment could produce $28M CAD a year revenue if their sales team can move the units.
Additionally, Nanalysis has four other business segments.
- K’Prime sells 3rd party scientific instrumentation type equipment to the research arms of businesses and universities. They do around $10M CAD a year revenue.
- The “Security Equipment Services” business arm was greatly expanded when K’Prime landed a $24M+ a year deal with the Canadian government agency CAFTA to service the scientific equipment at Canadian airports. I expect this equipment service arm of Nanalysis to also service equipment from Nanalysis’ “High-field NMR” acquisition, Quad Systems.
- High-field NMR company Quad Systems is a new acquisition, currently selling $340K+ CAD modules, but soon to be selling $2.5M+ CAD full systems of high-field NMR equipment. This a $1B CAD a year market opportunity that Quad Systems will be able to gain traction in. We hope revenue is $10M+ CAD a year soon.
- Medical Imaging is a new business line where Nanalysis is selling modules for use in MRI experimentation, so far to universities. They have signed about $2M CAD of deals in the last quarter or two. Nanalysis hopes to collaborate on a specialized MRI device for one of these verticals: ankle, arm, pelvis or head and buy out whoever they partner with as they bring the device to market.
2023 — The Year of Explosive Growth
If we look at year by year growth, Nanalysis has the potential to almost 10X their 2020 sales in 2023. They have the potential to come in with a staggering $65M in revenue in 2023 if their business units execute well. The quarters in the white boxes are projections. These are all CAD (Canadian Dollar) numbers.
I believe a back of the napkin breakdown of each business segment is necessary to see where these numbers are coming from. Here is what I expect to happen with each business unit over the next six quarters. The “Benchtop NMR — 100 mhz” might be the hardest number for the company to hit. There should be pent up demand for the device as the company can finally produce 30 per quarter. Nanalysis hasn’t promoting this unit at all, because they have always been backlogged on producing enough units to sell.
Comparative Valuations — Where the Money Is
Right now Nanalysis is trading at 2.4X a projected 2022 revenue level of $27.5M CAD. And it is trading at 1.0X my hopeful $65M CAD revenue level of 2023.
When I look at comparable companies I find Price / Sales ratios in the 7 to 14 range. These are the companies in this space that are actually growing as opposed to those standing still or shrinking. However it should be noted, their growth is only 5% to 20% a year. It is not eye popping the way growth will be for Nanalysis.
2022 Valuation
If we were to give Nanalysis a 7X Price / Sales ratio on 2022 revenue of $27M CAD, the value with 101M shares outstanding would be:
CAD — $1.87 per share (NSCI.v)
USD — $1.36 per share (NSCIF)
2023 Valuation
If we were to give Nanalysis a 7X Price / Sales ratio on 2023 revenue of $65M CAD, the value with 110M shares outstanding would be:
CAD — $4.13 per share (NSCI.v)
USD — $3.02 per share (NSCIF)
Clearly there is room for some big moves upwards as Nanalysis executes in 2023. Nanalysis does not have larger revenue and enterprise value numbers that normally result in better valuations. But they do, however, have huge growth potential. Revenue growth could easily be 100%+ in 2023 and they have large continued growth potential as they expand the scope of their various business arms competing against sleepy incumbents.
Summary
In some ways, the hard work for Nanalysis to grow is already done. They have signed the huge CAFTA contract, landed Quad Systems as a subsidiary, and finally scaled up their benchtop NMR production. To me this seems like a low risk play with a ton of upside. Risks might include a slower than expected CAFTA rollout, slower sales of 100 mhz benchtop devices, and Quad Systems taking longer than expected to bring their full system to market.
The charismatic CEO and founder, Sean Krakiwsky, is skilled at team building and deal making. He has taken five smaller companies and combined their efforts into a synergistic larger company that is still very small with a huge runway of growth available. I believe Sean will deliver strategic deals, partnerships, mergers or acquisitions in this space over the next few years as Nanalysis continues to evolve towards new growth opportunities.
I am long Nanalysis. Tickers — NSCI.v / NSCIF
