H.C. Wainwright & Co has started covering Graphene Manufacturing Group Ltd (TSX-V:GMG, OTC:GMGMF), which it describes as an "under followed stock" with "meaningful" upside.
The firm stands at an inflection point as it looks to commercialize, what the broker believes is a "disruptive graphene producing technology", which uses methane gas to produce high-grade graphene in bulk quantities at very low cost.
The company currently generates revenue mainly from the sale of graphene powder, TXR kits (for heating, ventilation and air conditioning (HVAC) systems, and graphene mixed coolants and lubricants, noted analysts.
"The company's revenue also comprises government grants, subsidies, and R&D incentives received by the company for carrying out graphene-based research activities," they added.
READ: Graphene Manufacturing Group invests A$600,000 to boost battery pouch cell customer testing and development
"We believe both the graphene industry and the company stand at an important inflection point, moving from R&D to commercialization, which should create broader awareness of the associated growth opportunity," said H.C. Wainwright analysts.
The broker is eyeing several developments over the next 12 to 18 months at the firm, which, it said, should act as favorable catalysts.
These include the launch of the company’s graphene automotive lubricants, establishing larger production infrastructure, commercializing coin cell batteries and advancing the pouch pack design.
The broker also expects the firm's graphene aluminium-ion (G+AI) batteries to make more progress towards being "market ready".
"We believe current levels present an attractive long-term entry point into the story," said analysts.
"During FY2020, FY2021, and FY2022, total revenues were A$1.3M, A$1.3M, and A$1.5M, respectively, mostly from grants and incentives. We are not projecting significant revenues during FY2023 and first half of FY2024; during this time, we expect the company to focus on development and optimization of coin cells, pouch cells, and the pilot plant."
The analysts also said they think revenues will rise to A$2.4M during FY2024, with the incremental revenue coming from traction in sale of initial pouch cells and continued growth in sales of TXR products.
"We expect EBITDA to turn positive in FY2026 and rise from an estimated A$70.0M in FY2026 to A$1.3B in FY2032, at a six year CAGR of approximately 62.4%," they added.
The broker highlighted that the global market for graphene was still relatively small, valued at around $75M in 2020 and projected to grow at a seven-year compound annual growth rate (CAGR) of roughly 35% to exceed $650M by 2027.
H.C. Wainwright rates Graphene Manufacturing Group a 'Buy' with a C$8 target price. Shares in the company are currently changing hands at C$2.34.
Contact the writer at giles@proactiveinvestors.com