Q: I own some NEO performance materials and I noticed it is at 52 week lows, and at the currrent price (a little under $7) the dividend yield is about 5.7 per cent. The net cash on the balance sheet (according to the last quarter) shows that the market cap is about 30 per cent covered by the cash on the balance sheet. This company is profitable, pays a healthy covered dividend, is buying back a few shares with a NCIB and is in a future world part of the economy (magnets for electric cars, wind turbines, defense products, etc. I think I should add more on this weakness in the share price. Am I missing something glaringly wrong with this under-the-radar company?
5i Research Answer:
The only thing missing is valuation. Based on 2023 earnings, it is very expensive. If we look at 2024 earnings, it becomes more reasonably priced (13X earnings) but it needs to meet those numbers. It misses estimates about half the time. It has about $95M net cash, which is indeed about 1/3rd of market cap. It might see some tax loss selling into year end, and the market for small caps is pretty ugly right now. We can't comment on position sizes but would view it as buyable, and we do think it will be higher 12 to 18 months from now.