Novonix Limited

NVX Details

Novonix Limited (ASX: NVX) is a battery materials and technology company that creates bright future for electric vehicles and grid energy storage. The company has a market capitalization of ~$856.15 million as of 21^st May 2021.

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

For the first half ended 31 December 2020, 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. In line with decrease in revenue from contracts with customers, the company reported an increase in net loss of 53% for interim period to $10.8 million on loss of $7.03 million in the same period last year. At the end of the half-year, net assets stood at $58.6 million, and cash and cash equivalents stood at $25.3 million.

Key Data (Source: Company Reports)

Recent Updates

• On 11 May 2021, the company announced the issue of 5,672,414 ordinary shares without disclosure to investors under Part 6D.2 of the Corporations Act and with no prospectus for the ordinary shares being prepared.
• On 10 May 2021, the company stated that it is exploring the secondary trading of its securities on the Nasdaq Stock Market. The company has submitted a draft registration statement, on a confidential basis, to the U.S. Securities and Exchange Commission (the SEC) about potential initial public offering in the U.S. of American Depositary Shares (ADSs), and concurrent listing of the ADSs on Nasdaq.

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 (involved in thermal processing solutions and technical services essential to produce advanced materials) to develop specialized furnace technology for battery anode material. This transition plan from Generation 1 furnace to Generation 2 systems will result in improved faster scalability and lower production costs. Further, it has become a member of the Zero Emissions Transportation Association (ZETA). Meanwhile, extended strong growth in R&D services business with tier 1 clients and maintained steady sales in battery testing equipment business. Importantly, it 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. These developments will help the company in cementing its position for future growth.

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

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/

After the previous week of sell-off, the stock has given a stronger close for the ongoing week, forming a ‘Bullish Harami’ pattern on the chart thereby signaling at bullish reversal for the stock. The technical indicator RSI with a reading around 50 and a curve at the end pointing up, suggests bullish momentum for the stock.

Going forward, the stock may have resistance around a 38.2% retracement level of $2.68 whereas support could be around a 61.8% retracement level of $1.73.

Stock Recommendation:

The stock rose by ~38.5% in 9 months. It has made a 52-week low and high of $0.302 and $4.230, respectively.

Considering the aforesaid facts, we have valued the stock using a Price/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight discount to its peer Price/Sales (NTM Trading multiple) considering continued loss of momentum 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 strong cash position, current trading levels, positive outlook, decent valuation, and strong management, we give a “Buy” recommendation on the stock at the current market price of $2.050 per share, down by 3.756% on 21^st May 2021. 

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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