Short name: NEXAM ISIN code: SE0005101003 www.nexam.se Published February 4th, 2014
Nexam Chemical is listed in Sweden on Nasdaq First North since April 2013. Nexam was founded in 2009 via a management buy-out from the Perstorp Group. The company develops, manufactures and sells an entirely new type of heat-activated crosslinkers for the broader plastics market. Its technology and products make it possible to significantly improve the properties and performance of most types of plastics in a cost-effective manner and with retained production technology. The improved properties include temperature resistance and service life. The improvements in properties that can be achieved by using Nexam’s technology make it possible to replace metals and other heavier or more expensive materials with plastics in a number of applications. Since Nexam’s technology was introduced in 2009, a number of development projects and partnerships have been entered into with a range of leading parties, of which several are world leaders in their respective niches such as BASF, Repsol, IRPC, Sumitomo, ABB, Nasa and Rolls-Royce. The plastics market
Plastics are closely connected to the growth of modern society. The global plastics market has grown by more than 9% annually since 1950, and in 2015, the market demand for plastics is expected to reach up to 300m tonnes (according to Nexam), which is equal to an approximate turnover of more than EUR 600bn. Several factors are in favour of continued high demand for plastics, such as population growth, increasing global wealth and not the least an increased focus on climate-smart solutions (such as lower weight wich results in less energy consumption) and more sustainable and cost-effective products and processes.
Nexam’s products in the form of heat-activated crosslinkers improve plastic’s resistance to degradation at high temperatures or in other demanding environments. They make it possible to replace metals with resource-efficient plastics, but also to replace expensive speciality plastics with cheaper standard plastics. One initial challenge has been the relatively long sales cycles prevalent in the industry. New materials undergo extensive tests, e.g. longevity of material, before they can be introduced into finished products which are normally delivered in large series over a long period of time. A normal sales process is estimated to take between 3 and 5 years, which corresponds well with how long Nexam has worked with its earliest customers.
According to Nexam’s management, the goal for 2013 was to develop existing customer relationships and thus take the step from customer tests and verification to large deliveries of commercial products. In 2014 and onwards, Nexam anticipates scaling up of production volumes and regular repeat sales to customers.
Benefit for customers
For Nexam’s customers the benefit is that they, without needing to rebuild their existing production process, can deliver better quality plastics to their end clients. This also means that they can deliver plastics that can replace steel and other metals in even more areas. this is especially appealing in the transport, aerospace and automotive industry, were the lighter plastic saves a lot of energy. Nexam’s technology also opens up new opportunities in electronics, oil and gas, transport, plastics recycling etc.
Nexam has 38 pending patent applications in a total of 11 patent families, which are in various national and international examination phases. A number of patents are expected to be granted in 2013 and more in 2014 and 2015, as nationalisations of patents already applied for occur. The Company’s direct competition is limited at this time. There are quite simply no other parties who have worked commercially with the chemistry and the products that are the core of Nexam’s operations, i.e. NEXAMITE portfolios and the majority of the NEXIMID portfolios. When it comes to competition for NEXIMID 100 (PEPA), Nexam knows of a couple of minor producers that have offered the product for a long time now; Manac in Japan and Cyalume (JFC Technologies) in the US. They are however estimated to have significantly higher costs of production than Nexam and lack the broad product portfolio that Nexam has built up.
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.