I want MNS to go up, since it's the my second largest EV stock holding after TLG.
However, I had some issues with the valuation basis that Henry uses in the article.
To get to his US$6bn (A$8.3bn) valuation, he breaks the business down to 3 components:
1. Magnis 63% ownership in IM3NY - US$4.5bn value - CATL as a comparator
He states that CATL has a valuation of US$200bn or about US$5bn/gwh (implying CATL manufacturing capability is 40gwh) and applies that to IM3NY 1.8gwh factory and applies a 50% discount to get to US$4.5bn. One thing that was missed was that Magnis owns 63% of IM3NY, not all of it.
If you dig a bit deeper, you will see that CATL is valued at US$188bn, but has a lot of future growth planned in manufacturing capacity.
The German publication Handlesblatt outlined that CATL wants to increase its production capacity between 2020 and 2025 in the following stages: 70 GWh (2020), 230 GWh (2021), 380 GWh (2022), 540 GWh (2023), 830 GWh (2024) and 1,200 GWh (2025).
If we use the valuation based on 2022 capacity, which is when IM3NY will have its fully operational 1.8gwh plant, CATL valuation is US$0.5bn/gwh (US$188bn/380gwh). If we apply this valuation to IM3NY 1.8gwh plant, then MNS 63% share is worth US$0.56bn or A$0.8bn
2. Magnis 9.65% ownership in C4V - US$810m - Quantumscape as a comparison
Quantumscape main technology is solid state, and has had the support of Volkswagen. Although I'm still a sceptic about the technology (check out the recent Limiting Factor video on this), Quantumscape isn't the right comparable for c4v.
Shailesh in his video talks about how C4V will have a semi solid state battery from 2025. This is similar to the 24M technology which Freyr has licenced and Kyocera recently produced. 24M is a private company but looking into it, they've had 5 series of funding raising a total of $93m. C4V have said they will be licensing their technology similar to 24M. Looking into Freyr's pro forma financial projections, they forecast to pay US$87m to 24M when Freyr has a capacity of 43Gwh. This would imply a valuation of circa US$1.7 billion using a 20x PE. C4V don't have any agreements to get to 43gwh yet, so it's valuation should be lower than 24M. Even if we use the apply the same US$1.7bn valuation to C4V (which is overstating it), Magnis 9.65% would be worth US$167m or A$236m.
3. Magnis 100% ownership of Nachu - US$825m - Based on Sila Resources valuation.
Sila Resources is a California based start up focusing on silicon based anode manufacturing.
The Nachu project although large, is not the same level of technology disruption. Given it is in Tanzania should have a value comparable to its African peers like BKT. BKT has a market cap of A$140m, has a project in Tanzania with a post tax NPV of US$1.2bn, and has a partnership with POSCO.
Nachu has a post tax NPV of US$1.69bn, so based on the BKT valuation, Nachu should currently be worth A$197m.
Current Valuation Summary
MF & Co came up with a US$6bn valuation, but when I do a sum of the parts valuation based on current comparables, I get a valuation in 2022 of A$1.233 billion, a share price of $1.35. Given the market cap is $320, that is still close to a 4x increase.
The future price of MNS should be higher as IM3NY expands to 15gwh, IM3TSV gets off the ground and Nachu project is realised.
DilutionHowever as mentioned before, there will be significant dilution, which MF& Co mention but do not calculate.
To get to 15Gwh, IM3NY will need around US$600m (based on what Freyr costings and plans). This will likely be raised when IM3NY goes for its NASDAQ listing. This will result in dilution, and it is likely that about 50% of the company will be given away to do this raising. This is what will result in Magnis ownership of IM3NY going down from 63% to 30%.
Future ValuationThere is still a lot of upside, but it will take a lot of things to fall into place and a lot of time.
Below is my quick valuation at maturity in 2028.
In 2028, batteries will cost around US$100/kwh (the price required for EVs to be on parity with ICE vehicles and as per Freyr forecasts) and if MNS/im3 can get the industry margin of 20% to 25%, then a rule of thumb will be that each Gwh of capacity will give an EBITDA of US$25m.
Magnis will have the following revenue sources:1. IM3NY will have about 15gwh (Magnis share of 30%) for an EBITDA of US$375m (Magnis share is US$112m);
2. IM3TSV will have 18gwh (Magnis share of 33%) for an EBITDA of US$450m (Magnis share is US$150m)
3. Nachu, the annual EBITDA attributed to Magnis will be around US$197m, which is 50% of the project EBITDA of around US$394m (220kt X $2,350 basket price - $559 average cost))
This is on the assumption that to fund Nachu, a JV will occur which gives away 50% of the project to fully fund the Capex (US$269m), similar to the Firefinch deal with Ganfeng on Goulimina.
At maturity (2028), this will mean Magnis will have EBITDA of US$459m (US$112m + US$150m + US$194m), which is A$646m.
At a conservative EV/EBITDA ratio of 10x, that will give a market cap of close to $6.5 billion. This is a 20x multiple on current prices by 2028.
(20min delay)