5N Plus Inc. (TSX: VNP) is a Canadian based company, which is engaged in the manufacturing of specialty metal and chemical products. The group operates through two segments Electronic Materials and Eco-Friendly Materials. The Electronic Materials segment manufactures and sells refined metals, compounds, and alloys, which are primarily used in a number of electronic applications.

Key Updates:

• Growth in the backlog and bookings: The company reported constant growth in backlog and its total bookings, which is a healthy sign. Notably, backlog stood at USD 96.6 million in Q3FY21, higher than the USD 74.6 million in pcp. Additionally, the company reported its bookings of USD 43.3 million, soared from USD 23.2 million in pcp. This supported by solid growth from both Electronic Materials and Eco-Friendly Materials operations.

• Better Debt-protection metrics: At the end of Q3FY21, the company reported its net debt to EBITDA at 4.75x, as compared to the industry media of 7.13x. A lower ratio suggests a higher debt protection metrics and is a key positive.

• Healthy balance sheet: The company reported a healthy D/E ratio of 0.47x in Q3FY21, as compared to the industry median of 0.82x. This reflects that the company has higher financial flexibility when compared to the industry median.

Risks: The company reported a surge in the input costs (Total expenses at USD 137.1 million in 9MFY21, v/s USD 118.0 million in pcp. The continuation of the above trend remains as a key concern for the company, as it would dampen the group’s margins and cash flows.

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• VNP announce its quarterly result, wherein the company posted revenue of USD 50.8 million, jumped from USD 39.8 million in pcp. The increase was driven by 63% higher revenue from Eco‐Friendly Materials segment (USD 31.4 million vs USD 19.2 million in pcp).
• The group reported higher cost of sales, increase in Selling, general and administrative expenses, partially offset by lower other expenses. Total costs stood higher at USD 48.8 million, as compared to USD 34.7 million in pcp.
• Operating earnings stood at USD 2.0 million, slide from USD 5.1 million in pcp, due to the surge in the input costs.
• The group reported a net loss of USD 0.7 million, as compared to net profit of USD 2.7 million in pcp. This was primarily due to the higher input costs coupled with a rise in income taxes (CAD 1.9 million v/s USD 0.8million in pcp)
  

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

During the fourth quarter of FY21, the company completed the acquisition of AZUR SPACE Solar Power GmbH (AZUR), which operates  in the development and manufacturing of multi-junction solar cells based on III-V compound semiconductor materials. This is expected to boost the company’s product portfolio within specialty semiconductors segment and is likely to offer tremendous growth prospects considering the higher dependence of several critical industries on the semiconductor chipset. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Dupont De Nemours Inc, AECI Ltd etc. Considering the aforesaid facts, we give a ‘Speculative Buy’ rating on the stock of VNP at the last traded price of CAD 2.35 on February 04, 2022.

One-Year Technical Price Chart (as on February 04, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

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. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

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

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