Investing

Neo Performance Materials (NEO:TSE): Magnetics and Rare Earths Division Make This Stock Priceless

Neo Performance Materials (NEO:TSE) was boosted by a strong economic recovery as prices for its products rose. With a 2.3% yearly dividend and exposure to a growing market, the stock is set to reach new highs in the future.

The Toronto-based Neo Performance Materials (NEO:TSE) can be considered a safe-bet for institutional investors looking to increase their footprint in the technology-boosted advanced materials market. With a variety of divisions on different markets Neo Performance Materials will only get a larger global footprint. Neo’s magnetic powders and magnets, specialty chemicals, metals, and alloys are critical to the performance of many everyday products and emerging technologies.

Important Magnets Need Neo’s Magnequench Division

Their magnetic material division Magnequench is the main revenue booster, together with price rises and a 35% increase in volume this division saw revenue rise with a whopping 68.5% in Q1 2021 YoY. Especially the electric vehicle market was responsible for the large increase in volume sold and squeezed revenues up for Neo Performance Materials. As the EV market is only expected to increase even more the coming years, while other technologies increasingly are dependent on its magnetic powders Neo has a bright future ahead. Also their Chemical & Oxides division saw a large increase in revenue boosted by increased prices for their rare earth products. The 62% revenue increase led to a tremendous 300% increase in operating income. Again the automotive market was mainly responsible for the vast increase of volume demanded (+21%), as prices for rare earth products and metals went through the roof in recent months.

Figure 1 – Neo’s revenue diversification

Demand For Rare Earth Metals Will Continue To Boost Neo’s Revenue

As Virgin Galactic (SPCE) completed their first ever aerospace test flight, space tourism is likely to catalyze as private sector companies increasing start reaching for the skies, Neo’s rare metals are essential for space endeavours. Moreover, as the aerospace sector is set to rebound from the COVID-19 inflicted drop in flights their small division focusing on rare metals is set to enjoy a major boost. With the right marketing and strong market integration Neo’s Rare Metals division will most likely benefit from the increasingly metal-hungry environmental technology sector as their rare metals are used in LEDs, batteries, solar panels and wind turbines. As Neo is set to produce Neodymium in its Silmet facility this year the new production stream will boost Neo’s geopolitical position too as the essential element is critical for modern day technologies. But as prices for Neodymium rose to recent highs in Q1 2021 this division will most likely benefit from higher revenue incomes too.

Figure 2 – Neodymium prices exploded in recent months as EV demand increased

Neo’s Collaboration With Energy Fuels Is Essential For The West

As Western nations have been worried about the Chinese dependence on rare earths, Neo Performance Materials (NEO) and Energy Fuels (UUUU) have been working in a technical collaboration to establish a monazite processing and RE Carbonate production capacity at Energy Fuels’ White Mesa Mill plant. Recently, Neo’s Silmet facility in Estonia has successfully processed trial quantities of Energy Fuels’ RE Carbonate which will ensure the supply of Neodymium for the European market and Neo’s magnet division in Thailand. When ramped up to commercial scale, this new rare earth supply chain is expected to constitute the first time in over twenty years that monazite ore from the U.S. will be used as a feedstock to manufacture separated rare earth materials outside of China. As both the United States and Europe acknowledge the importance of establishing rare earth supply chains outside of China, this major development makes Neo’s existence essential to Western economies.

Figure 3 – Neo’s rare earth metal facility in Sillamäe, Estonia

A Healthy Balance Now, Means Unlimited Growth In The Future

Neo Performance Materials is one of the only suppliers of advanced with a wide variety of clients and exposure to different markets. The globally operating company has a market cap of around 600 million CAD dollars, which is tremendously low for a dividend paying company in the advanced materials industry. As Neo has a vertically integrated global supply chain, it is set for some strong and healthy growth the coming years. However, as companies have been increasingly stockpiling their inventories, demand for Neo’s materials could drive lower the coming time. But as Neo’s products are essential to future supply chains, its share price at the moment is a steal for long term investors.

Together with Lynas Rare Earth Ltd this company is essential in facilitating the rise of increasingly electrified products for sustainable solutions. Their recent 79 million CAD stock offering will finance growth efforts for Neo Performance Materials in an effort to boost their connection to future supply chains. As the share price is slightly diluted and boosted by strong Q1 results on the short run some downturns can be expected before Neo explodes upwards. However, long term investors will find out that an investment in Neo Performance Materials will ensure healthy portfolio diversification from technological stocks that still have to prove to be profitable.

Disclaimer: The writer of this article holds Neo Performance Materials (NEO:TSE) stock, this article should not be interpreted as investment advice or anything like that.

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