Nano Nuclear Energy Inc. (NNE:NASDAQ) caught the eye of analyst Michael Legg at The Benchmark Co., who initiated coverage on it with a Buy rating and a US$15 per share price target, he reported in a June 14 research note. The energy company is trading now at about US$7.07 per share, meaning the potential return for investors now is 112%.
"[The company] is positioned at the forefront of the emerging nuclear small modular reactor (SMR) energy movement driven by climate change mandates and government incentives that position carbon neutral energy generation center stage," Legg wrote. "We believe the majority of new reactor growth will come from SMRs."
In his report, Legg made a case for the company as an attractive investment.
Four lines of business
Based in New York, Nano Nuclear is developing portable nuclear SMRs, or microreactors, for commercialization and building out a related supply chain, including uranium mining, uranium fuel fabrication, fuel delivery to end users, and nuclear power consulting, noted the analyst.
"[The company's] current focus on four key areas — original equipment manufacturing, fuel, fuel transport, and consulting — provide a diversified opportunity to invest in advanced nuclear technologies positioned for significant long-term growth over the coming decades," commented Legg.
Favorable market opportunity
The company is pursuing these objectives at the right time, Legg wrote. Despite increased electricity consumption over the past 30 years, nuclear capacity in the U.S. has stagnated. Further, 198 countries, at COP28 last December, officially called for a tripling of nuclear
capacity by 2050 globally, taking it to 1,200 gigawatts electric (1,200 GWe) from the current 400 GWe. Also, by 2050, all large-scale, legacy pressurized water and boiling water reactors will be more than 60 years old and need replacing.
Each of Nano Nuclear's microreactors in development, ODIN, a low-pressure coolant reactor, and ZEUS, a solid core battery reactor, delivers about 1.5 megawatts electric and can power 1,000 homes for 20 years.
"Given the nascent level of SMRs deployed today, we believe NANO Nuclear has a first-mover advantage," wrote Legg.
Timeline to profitability
First shipping of ODIN and ZEUS is slated for 2029, at which time, Legg predicted, the company will begin generating meaningful revenue. High-assay, low-enriched uranium, or HALEU, fuel delivery is on track for 2025 and commissioning of fuel fabrication, in 2027.
Legg estimated Nano Nuclear's microreactor line of business could generate about a 40% gross margin maximum in the long term after which it would "steadily decline in price as economies of scale and operating efficiencies are incorporated." Fuel fabrication could yield a 50% gross margin and fuel transportation, a 35% gross margin.
Sources of financing
To get an SMR manufacturing facility up and running, the company will need about US$200 million (US$200M) in capex, Legg estimated and noted it likely will be able to obtain capital from various governmental sources.
These include the U.S. Department of Energy (DOE) and the initiative in the Inflation Reduction Act to fund advanced nuclear fuels.
Strong team inside and out
Another key element of Nano Nuclear, the analyst noted, is its stellar technical team, experienced management, high-profile advisory board, partners such as the University of Cambridge and the University of California—Berkeley and connections within federal agencies like the DOE.
To name a few of the management team, Jay Yu founded Nano Nuclear and is its executive chairman and president. He is an entrepreneur, investor and corporate adviser, with 16 years of capital markets experience on Wall Street. For Nano Nuclear, his responsibilities include corporate structuring, capital financings, executive level recruitment, governmental relationships and international brand growth.
James Walker, a nuclear physicist, is the chief executive officer, head of nuclear reactor development, and a board member. His experience includes being the project lead and manager behind the recent construction of a nuclear power plant for Rolls-Royce Holdings Plc.
Likely stock boosters
Some of the expected catalysts for Nano Nuclear's stock, Legg wrote, are operational progress and advancement of its platform, including additional partnerships, licenses, government grants and/or other nondilutive capital. Other catalysts are continuing education about, acceptance of and demand for nuclear energy as viable power source and a needed one for current and future clean energy initiatives.
Nano Nuclear went public on May 10, 2024. Its market cap is US$205M.
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Disclosures for Benchmark, Nano Nuclear Energy Inc., June 14, 2024
Analyst Certification The Benchmark Company, LLC (“Benchmark”) analyst(s) whose name(s) appears on the front page of this research report certifies that the recommendations and opinions expressed herein accurately reflect the research analyst's personal views about any and all of the subject securities or issues discussed herein. Furthermore, no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst(s) in this research report.
Benchmark Disclosures as of June 14, 2024
search Disclosure Legend 1. In the past 12 months, Benchmark and its affiliates have received compensation for investment banking services from the subject company. 2. In the past 12 months, Benchmark and its affiliates have managed or co-managed a public offering of securities for the subject company. 3. Benchmark and its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company in the next three months
Investment Risk Risks include the inability to source capital and fund NNE's buildout, the need to secure government permits related to nuclear power, loss of key management, unproven technologies at scale, larger well financed competition, and unforeseen regulations.
Valuation Methodology Our target price of $39 is based on our NPV analysis built out to 2042 utilizing a 25% discount rate. Our share count increases to 55mm shares from 29mm today, factoring in equity raises over the next 5 years. Should the company receive government grants, our share count assumptions could prove conservative. We believe the stock will benefit from increased knowledge and proliferation of demand for SMRs as safety and use cases gain public acceptance as climate change initiatives favor emission free energy and see such as key catalysts for the stock alongside continued operational progress.
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