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#Nexam: A lot of positives in Q1 report

NexamLogoNexam Chemcial reported its Q1 2014 results today. The numbers as such did not offer any offer surprises as the major commercial contracts were taken during the quarter and will start to contribute in a meaningful way later on during 2014.

As previously announced, the highlight of Q1 were the exclusive two-year agreement between BASF and Nexam for the commercialisation of crosslinkable nylon 66, as well as the three-year exclusive supply agreement with Armacell concerning PET foam. Interestingly, Nexam products were already delivered to Armacell during the quarter. In today’s report, Nexam also states that tests in regular production on the premises of the customer with respect to a special nylon for use in applications such as mobile phones and tablets have been conducted, and the customer remains interested. Furthermore, the company is in “extensive discussions on cooperation agreement and forms of cooperation for commercializing crosslinkable polyolefins with one of its partners from the PO-CROSS Project are ongoing.”

According to Nexam, there is a heightened interest in and increased demand for Nexam’s technology among both foreign and domestic companies with respect to materials such as PET, polyamide and polycarbonate. Even more positives can be found under the section “significant events after the end of the period” in the report. Here, Nexam states that a project commenced with a major special nylon manufacturer. Furthermore, Nexam entered into two confidentiality agreements and jointly started projects with an elastomer manufacturer and a major European defence industry supplier. Encouragingly, the HICTAC Clean Sky Project seems to have progressed positively as well. Another potential customer (in addition to Rolls Royce) is expressing great interest in testing the material. New results indicate that several new application areas will be opened up. Elsewhere, Nexam states that the next generation modified injection-moulding tool has been developed and curing tests with it are underway. Adding to the positive comments, Nexam also states that is has sold NEXIMID 200 (EPA) to a new Japanese customer that has commenced commercialisation of materials for the electronics industry. Last but not least, samples of mDOB product have been delivered to several potential customers in Europe and also in China for testing and qualification.

Says CEO Per Palmqvist Morin: “We are working internally on optimising crosslinking technology for polyester resin, including PET and PBT. The first customers to enter the test phase will most likely be some of the major polyester resin producers, but also some other companies involved in recycling plastic. Our European agent hired in the first quarter has a special task to develop business involving polyesters and polyolefins, since we believe that there are business opportunities in the near term for Nexam’s products in these areas…. In the near term, we are focusing on supporting the major prjects underway and commencing several commercialisation phases during the year.

The Nexam – story is just getting better and better with new cooperations and partnerships announced all the time. We believe that the Nexam share has the potential to become a multibagger. The current market cap of around SEK 1.3bn should be put into perspective to the huge potential. With BASF and Armacell, Nexam has initiated the commercialisation phase already and it seems to  be in a great position to add several additional customers which could lead to massive revenue development over the coming years. The annual total global plastics consumption 2015 is estimated to be 300m tons. Based on the assumption that 3% of Nexam’s additive is added per kg of plastic and the average price for the additive is 23 USD/kg, Nexam’s turnover would amount to USD 2bn for each percent of market penetration. That is around SEK 13bn at current exchange rates.

As with most story-stocks, it is arduous to talk about valuation. Given the disruptive nature of Nexam’s innovation we believe that incoming orders will drive the share price higher to completely different levels than we see today. From that perspective, we see many similarities to what has happened to the additive manufacturing segment in recent history.

Nordic Investor

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