Novonix Limited

NVX Details

H1FY21 Performance (For the Period Ended 31 December 2020)

Novonix Limited (ASX: NVX) is engaged in the business of the development of advanced battery materials and related technology services to cater to the requirements of the lithium-ion battery market globally.

The company has reported a 6% YoY decline in revenue to $2.73 million wherein revenue from contracts with customers declined by 13.1% to $2.32 million whereas other income increased by 79.6% to $0.40 million. Further, the company posted an increase in net loss after tax to $10.8 million in H1FY21 from a net loss of $7.0 million in H1FY20.

The company declared that no dividend would be paid for an interim period.

Financial Snapshot (Source: Company Reports)

Bagging of Grant Funding: The group has bagged a US$5.57 million grant funding from the US Department of Energy on 21 January 2021. The funds will be utilised towards the development of advanced furnace technology which will find application in lithium-ion battery synthetic graphite material.

NVX, on 19 February 2021, declared that it has formed a partnership with Emera Technologies to design, develop and manufacture specialised energy storage systems for use in direct current micro grids across North America.

Outlook:

The group’s synergistic operating structure has started yielding good results. Its technology roadmap including the transition to Generation 2 and the development of Generation 3 furnace technology is driving this growth plan and offering enhanced scalability.

The group, on 26 February 2021, has successfully finished the placement of fully underwritten new equity shares worth A$115 million to institutional and sophisticated investors. It will utilise the funds generated from the capital raise initiative to boost its anode materials capacity to 10,000 tonnes as well as towards R&D and pursuing prospects for the international partnerships. Moreover, on 26 February 2021, it has raised $16.45 million through the issue of shares to directors of the company.

Key Risks:

The company is exposed to the risks associated with the demand environment. Any slowdown in the demand for anode material globally could hurt the company’s growth as well as expansion plans.

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

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock for the past couple of weeks has been hovering around the 61.8% retracement level of $2.20. It has given a softer close for the ongoing week at $2.17. The technical indicator RSI with a reading around 52 suggests bullish momentum for the stock.

Going forward, the stock may have resistance around the 50% retracement level of $2.59 whereas support could be around $1.60.

Stock Recommendation: NVX has delivered 6-month and 9-month returns of ~+95.49% and ~+94.6%, respectively. The stock made a 52-week low and high of $0.216 and $4.230, respectively.

We have valued the stock using Price/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects the rise of low double-digit (in % terms). We have assigned a discount to its peer average Price/Sales (NTM Trading multiple), considering the weak profitability performance in H1FY21 and the associated risks. For the purposes of valuation, we have taken peers such as Dubber Corp Ltd (ASX: DUB) and NEXTDC Ltd (ASX: NXT), etc.

Meanwhile, the company sustained the engagement as well as progress relationships with various global partners to tap prospects for potential technology partnerships. Further, it is mulling on developing new technology by forming strategic partnerships with new and existing customers driven by the influence of the battery technology solutions (BTS) market position.

Considering the growth strategies, focus towards gaining scale across the business, capacity expansion plan, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $2.17 per share, down by 3.126% on 6^th May 2021.

NVX Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: 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 Valuation has been achieved and subject to the factors discussed above.

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