Novonix: It looks like success is priced in

About the author:

Max Vickerson
Author name:
By Max Vickerson
Job title:
Analyst
Date posted:
10 September 2021, 8:00 AM
Sectors Covered:
Industrials, New Energy

  • Novonix (ASX:NVX) has rallied strongly over the last month and has approached our previous bull case target.
  • We think the company can deliver on its goals to win customers and build its business but that this is reflected in the share price.
  • Our base case valuation has lifted to (login to view) but we reduce our rating to HOLD.

Outperforming the index and the sector

NVX has rallied 83% over the past month following the announcement of the strategic share placement to Philpps66 in early August.

The company has also recently been included in the ASX300 which it has outperformed by 86% over the same time period.

NVX has also outperformed a significant number of local and international battery related companies. Our composite covers a large range of market capitalisations and includes raw materials producers as well as battery manufacturers. In the last month NVX has outperformed this group by 90%.

Valuation update

We lift our base case valuation to (login to view) by adjusting our estimated cost of equity and base case risking weighting.

We have reduced our base case estimated cost of equity to 12% (-1.5%) bringing it in line with a number of commodity producers but below some early-stage tech companies in Morgans’ coverage.

Offsetting this is a small increase in our base case risk weighting of the anode business to 25% (+5%). We think the appropriate milestone to remove it will be when the company achieves its first contract for a meaningful ongoing volume.

Investment view

NVX’s prospects continue to look promising however we think the share price already reflects a lot of the future success that we think the company will achieve. There is still a small premium to our updated base case valuation but we think the risk to reward is less attractive than before.

We therefore reduce our rating to HOLD as we wait for more detail on the company’s progress on the Samsung quality audit and confirmation of our expectations for gross margins.

Price catalysts

A secondary listing, or trading of depositary receipts on the NASDAQ exchange will likely lift the company’s profile with investors in the US and potentially globally which should be supportive of the share price and increase liquidity.

Material customer contracts for NVX’s battery anode material would likely trigger a strong rally in the company’s share price. The most developed relationship is with Samsung which is currently assessing the quality of material from NVX’s upgraded furnaces. Completion of this process and delivery of the contracted 500t is expected within the next six months.

NVX is also continuing to research new technologies and progress its pilot plant for dry processing of cathode material. It’s unlikely these will be commercially developed in the short term but they could unlock new markets in the medium to long term.

Risks

Installation and commissioning of the next anode production plant.

Further delays to the Samsung quality audit.

Securing new customers.

Costs of raw materials in anode production (petroleum coke, electricity, etc).

Interest rates.

Tax regimes.

Demand for lithium ion batteries.

Find out more

We share the full list of stocks with material upcoming catalysts and share our analysts' comments in our full research note.

Download full research note

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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