Novonix Limited

NVX Details

Novonix Limited (ASX: NVX) is a battery materials and technology company that empowers the future for electric vehicles and grid energy storage with operations in the USA and Canada and sales in over 14 countries.

Result Performance – For the first half ended 31 December 2020 – (H1FY21)

• Fall in Revenue: The revenue from contracts with customers stood at $2.3 million, down 13.1% YoY while other income increased by 79.6% YoY to $0.4 million.
• Total income fell by 5.8% YoY to $2.7 million.
• Statutory after-tax loss of $10.8 million versus a $7.0 million loss in H1FY20.
• Net assets stood at $58.6 million, and Cash and cash equivalents stood at $25.2 million.

Key Data (Source: Company Reports)

Q3FY21 Activity Report

• Added to the OTCQX Composite Index and the OTCQX International Index
• Awarded US$5.57 million from the US Department of Energy for new furnace technology development
• Signed a 5-year research sponsorship agreement with Mark Obrovac’s Research Group of Dalhousie University
• Partnered with Emera on innovative residential energy storage technology
• Completed fully underwritten AU115 million placements of ordinary shares to institutional and sophisticated investors at $2.90 (Institutional Placement). Use of proceeds will be for scaling NOVONIX Anode Materials to 10,000 tonnes capacity, investment in R&D, and to pursue international partnership opportunities
• Raised AU$16.45 million through a placement to Directors of NOVONIX, pending shareholder approval
• Cash balance as of 31 March 2021: $131 million

Recent Updates:

As per the release dated 23 June 2021, the company plans for the next phase of development for NOVONIX Anode Materials in Chattanooga, Tennessee. NVX is under contract to purchase agreement and plans to retrofit the former Alstom building.

Key Risks:

The company is exposed to the risks associated with the demand environment. Any slowdown in the demand could hurt the company’s growth as well as expansion plans. Further, the company has signed multiple agreements for R&D and product development, which if goes unfavorable, could impact the company’s plan accordingly.

Outlook:

The company formed a strategic alliance with Harper International to develop specialized furnace technology for battery anode material. Meanwhile, extended growth in R&D services business with tier 1 clients and maintained steady sales in battery testing equipment business. Importantly, announced an update on the planned delivery schedule for the Samsung SDI contract for the NOVONIX Anode Materials synthetic anode material for use in lithium-ion batteries. Further, it is focused on engineering and planning work for 30,000 tpa expansion plant to boost 2025 production targets.

Valuation Methodology: Price/Sales Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock has delivered a one-month return of 16.29%, and 3-months return of 15.28%. The stock is trading above the 52-week high ($4.23) and 52-week low ($0.96) average price. We have applied Price/Sales multiple-based relative valuation (on an illustrative basis) and there are expectations that the stock price might witness a fall of low double-digit (in % terms). We have applied a slight discount to Price/Sales Multiple (NTM) (Peer Average) considering continued losses in the financial performance of the company and longer cash conversion cycle that stood at 237.4 days in H1FY21 vs 140.3 days in H1FY20.

Considering the aforesaid facts, increase in net losses, decent returns, associated risks, and current trading levels, we suggest investors to book profits and wait for a better entry level. Hence, we give a “Sell” recommendation on the stock at the current market price of $2.80 per share, on 14^th July 2021 as on 10:08 am (GMT+08:00 Australia Western Time).

Daily Technical Analysis Chart

Source: REFINITIV, Note: Blue color bars reflects daily volumes, Green Color line reflects 21-period SMA, Black Color Line reflects RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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