Friday February 7th, 2014, Nexam Chemical‘s share closed at SEK 16.7. The following Monday was the day when Nexam published the news about its commercialisation agreement with the largest chemical company in the world, BASF. That day, Nexam’s share closed at SEK 21.6.
Today, November 18th 2014, Nexam’s share is trading at SEK 16,4. So what has happened over the last 9 months that has caused the share to drop to levels seen at the first time of our coverage? Surely the BASF contract must have been cancelled, or some other bad thing must have happened, you might think. The opposite is true, which is why we believe that an educated long-term investors has a golden opportunity to start or increase his/her stake in what is most likely the most interesting story on the Swedish stock market.
Here is what happened since February 2014 in chronological order:
- February 10: Nexam signs deal with BASF regarding Nylon 66, which “could be worth several billion SEK“, according CEO Morin.
- February 13: The Board of Nexam has decided to initiate the process to prepare the company for change of venue for the company’s shares from NASDAQ OMX First North to NASDAQ OMX Stockholm Small Cap
- February 19: Nexam enters into a three-year exclusive supply agreement with German Armacell, the world’s largest producer of PET foam. The volumes agreed for Armacell to retain its market exclusivity is equivalent to Nexam sales of about 10 million in 2014, 60 million in 2015 and SEK 120 million in 2016, based on prices in February 2014.
- February 20: European patent for aromatic polyetherketones (PEAK) granted
- February 27: US patent for MEPA granted
- March 13: Directed new share issue of 3m shares at SEK 22.5 to international institutional investors and qualified investors in Sweden. Proceeds “to be used to finance and enabling the continuance of a high rate of expansion and the development of the company.”
- May 9: Confirmation of European patent for MEPA
- May 14: CEO Morin says in Q1 2014 report that “around 10 other large companies are currently testing Nexam’s crosslinkers in different types of nylons.” and that the BASF contract is likely “the first of several future similar introductions.”
- June 2: Patent application regarding PETA approved in USA
- June 9: Nexam publishes that Mitsubishi Gas Chemical and Osaka Municipal Technical Research Institute have applied for a patent which includes Nexam’s PETA crosslinker
- June 12: Nexam introduces new product: NEXIMID HT-R, a new resin for the aerospace sector, but also for industrial and transport applications.
- July 7: Nexam enters cooperation with Thailand based polymer and polyolefin producer IRPC.
- July 10: Nexam receives notification of EUR 375,000 project financing from Eurostar for its rPET project.
- July 16: Nexam’s founders and members of the Board sell 3.1m shares (6% of the company) at SEK 27,5. This represents on average 25% of the individuals share holding. They continue to own 18% of the company after the deal. The shares were sold to institutional investors in preparation of the ongoing relisting to Nasdaq OMX main list.
- August 12: Patent granted in Japan regarding nylon resin with MEPA
- August 20: Nexam’s MEPA and EPA included in patent applications by JNC Corp and Nissan Chemical Industries.
- September 15: Receives European patent for production process crosslinker EBPA
- September 19: Japanese JVP (Photovoltaics) begins commercialisation of material which contains one of Nexam’s crosslinkers within the product portfolio Neximid. Production is scheduled to start during Q2 2015. Nexam expects the initial sales value to be around SEK 1m in 2015 and SEK 2m in 2016 with volumes expected to increase the years after.
- September 24: EU grants brand NEXAMITE to Nexam
- September 25: Nexam goes 3D-printing. Chinese Institute of Chemistry at Chinese Academy of Sciences files patent application for method of 3D-printing polyimides which is enabled by including PEPA
- October 3rd: Nexam launches NEXIMID MHT-R, an easy to use polyimide resin for high-temperature application areas
- October 15th: Nissan Chemical Industries has applied for patent regarding production method of thin resin film for flexible displays, containing PEPA. Also, JNC Corporation applied for patent regarding polymide film for electronics, containing EPA.
- November 3rd: Nexam receives Japanese patent for its nylon resin with MEPA
- November 4th: Nexam receives Taiwanese patent for PETA
- November 7th: Nexam announces recruitment of new CEO and CMO. Founders, including acting CEO Morin will continue to be operational within Nexam.
- November 10th: Nexam reports Q3 2014 report and says Armacell cooperation is somewhat delayed. If Armacell does not want to lose its exclusivity agreement with Nexam, they will either have to start buying the minimum volume before year-end, or we will get a new agreement which will most likely be more favourable for Nexam since other companies have shown interest during the year as well.
- November 11th: Member of the Board Michael Karlsson buys 42,000 shares (ca SEK 800,000)
- November 14th: Anders Spetz officially appointed new CEO as of January 1st 2015. Most recently, Anders comes from the listed company Sanitec where he has been commercially responsible (CCO) and part of the Group Management. He has previously worked at Akzo Nobel and Neste Chemical, as well as CEO in the Trioplast group.
To sum it up, over the last 9 months Nexam secured two commercialisation deals with some of the biggest players in their respective fields (BASF and Armacell) and a third one with Japanese JVP. The company has received several patents around the world and major global companies have applied for patents which contain Nexam crosslinkers. The company is actively working on its relisting to Nasdaq OMX main list and has strengthened its leadership and management with experienced individuals. On the downside, we can note the sale of 6% of the company by insiders to institutional investors. However, this should be seen as shareholder base diversification ahead of the relisting and, also interesting, the sale was made at SEK 27,5 (almost 70% above today’s share price levels). Before ignorantly stating: ” Well-time insider sale” critics should consider that the shares were bought by professional institutional investors who certainly made their due-dilligence ahead. Another issue, which one could interpret as negative, is the delay in the cooperation with Armacell. Here we argue that it cannot be surprising that such a process takes time and might cause some issue that need to be adjusted. Moreover, we argue that it makes absolutely no difference whatsoever, if Nexam can sell these minimum volumes in 2014 or 2015.
The first time we wrote about Nexam was on February 4th. Our verdict today is the same as it was back then, probably with even more conviction today given the developments during 2014 so far:
“Nexam Chemical seems to have the potential to become a multibagger. The current market cap of SEK 800m needs to be put into perspective to the huge potential. Nexam is in the final stage with several important potential customers which could lead to massive revenue development over the coming years. Like mentioned above, the annual total global plastics consumption 2015 is estimated to be 300m tons. Based on the assumption that 3% of Nexam’s 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. In that way, we see many similarities to what has happened to the additive manufacturing segment in recent history.”