Arrowhead published an Equity Research Report on 5N Plus
March 14, 2023

5N Plus (TSX:VNP) Research Update

Highlights:

Arrowhead is updating its coverage on 5N Plus with a fair value bracket of CAD 4.0 to CAD 4.4 (share price on March 14, 2023: CAD 3.54) based on the Discounted Cash Flow (DCF) method.
Despite the geo‐political uncertainties and macro‐economic challenges the company has made significant progress by executing its strategies and is now well‐positioned to capitalize on the momentum and market leadership in the sectors it operates. As a result, the revenue for the company stood at USD 264.2 mn in FY 2022, compared to USD 210.0 mn last year, a growth of 25.8% year-on-year (YoY). The strong growth for the year was primarily attributable to unprecedented demand for renewable energy in the Specialty Semiconductors segment and for pharmaceutical and health in the Performance Materials segment and strategic acquisition of AZUR. Revenue for the quarter declined by 5.4%, reaching USD 61.0 mn, compared with USD 64.5 mn in Q4 2021, majorly due to the phase out of low-margin business undertaken earlier in the year, followed by its divestiture in late December 2022.
The commercial excellence program coupled with favorable product mix has helped the company in mitigating the negative impact of inflation on product margins thereby paving way for a 350 basis point of gross margin expansion for the quarter. The adjusted gross margin for Q4 2022 stood at 26.7% as compared to 23.2% in Q4 2021, while for the full-year, the adjusted gross margin stood at 23.7% as compared to 23.5% in FY 2021.
Adjusted EBITDA for the full-year reached USD 30.0 mn, compared to USD 28.2 mn last year. The company expects its adjusted EBITDA to be between USD 35.0-40.0 mn for FY 2023, and USD 45.0-50.0 mn for FY 2024, given its prolonged investments in high‐growth potential opportunities, unprecedented demand in key end markets, simplified business and product mix.
During the quarter, the company recorded a loss on divestiture of USD 7.8 mn on the winding down and divestiture of the Tilly, and USD 3.2 mn in litigation and restructuring costs.
Despite delays due to contractor unavailability and delayed equipment deliveries, 5N Plus has completed its St-Laurent project (Montréal, Canada), which is aimed at expanding the development and manufacturing of critical and strategic minerals for advanced II-VI-based semiconductors.
In Specialty Semiconductors segment, 5N Plus, being the sole viable global supplier outside China, of ultra‐high purity semiconductor compounds, expects that demand within the segment will majorly be driven by terrestrial renewable energy and space solar power, while in Performance Materials segment, health and pharmaceutical products continue to be the key driver in providing high profitability and consistent cash flows.
The company has a strong outlook as it continues to focus on the right sectors to expand the segment’s product mix in attractive end markets thereby unlocking its full potential through enhanced product offering and investing in its operations to meet exceptional customer demand in the years to come.