Neo Material’s Formula for Success: ‘sustainable competitive advantages including customer stickiness’

RareMetalBlog-TMS-Constantine-KarayannopoulosYesterday, March 1st, it was exactly one month since the Technology Metals Summit (TMS) 2012 kicked off with the keynote address by Constantine Karayannopoulos CEO of Neo Material Technologies Inc. (TSX: NEM). Numerous people have asked me for his PPT and we have it posted for members on REEWorld.com.

But what’s happening with NEO? This morning ahead of the market opening, shares are at CAD$8.72 with a market capitalization of CAD$1.01 billion. In July 2011 analyst Nick Agostino of Euro Pacific Canada Inc. had set a 12-month target share price of CDN$14.25 for Neo Materials in his report called A Rare Opportunity for a Unique Investment.

NEM’s financial statements continue to strengthen each quarter. Revenues in Q3 2010 were USD$91.3 million versus USD$698.7 million for the trailing 12 months as Constantine reported at the TMS. In addition, earnings per share (EPS) in Q3 2010 was CDN$0.13 versus CDN$1.50 for the trailing 12 months.

As a producer, processor or developer of neodymium-iron-boron magnetic powders, rare earth and zirconium based engineered materials and applications NEM holds a strategic place in the rare earths sector because its products are essential components in many hi-tech products. The report also outlines that “NEM’s business operations benefit from many sustainable competitive advantages including customer stickiness; defendable patents; a low cost structure; and a niche high-end market focus that limits substitution and competition.”

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Through its Performance Materials division NEM is engaged is the processing of rare earths and refines neodymium oxides to produce neo powders at its Magnequench division. NEM has facilities in China and Thailand. The Performance Materials division is the second largest global processor and distributor of rare earth and rare metal based materials. The Magnequench division is also a leading global supplier of neodymium powder with approximately 85% of the market share by volume.

If you’re asking, ‘what are the market drivers for the rare earths industry?’ — Constantine’s keynote address at the TMS answered this question. The three key drivers of organic growth in the rare earth industry are:

  • Miniaturization: high demand for lighter, smaller, smarter electronic devices
  • Clean technology: emissions standards
  • Energy & Fuel Efficiency: smaller and more efficient motors

He added that in 2011 China accounted for 60% of the global demand for rare earths. In 2012 China will account for 70% of the global demand of rare earths and that rare earth production will continue to shift to China as long as there is an international price differential.

(*Prices taken from Google Finance at 9:10AM EST on 02-03-2012)


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Tracy Weslosky

About Tracy Weslosky

Tracy Weslosky is the Publisher and Editor-in-Chief of InvestorIntel, a leading global investment intelligence source created for the innovative and entrepreneurial minded that represents over 50 publicly listed companies globally that are listed on InvestorIntel.com. Tracy is also the Founder & CEO for ProEdge Media Corp., an online publishing and media production company since 2001; and is the Managing Partner for 724 Capital Corp., a business consulting firm that currently represents U.S. Rare Earths, Inc. Previously she has owned a boutique Investment Banking firm for 7 years that was the basis for a business reality television series called, DealFlow. Aired around the world for 3 years on CNBC World, WealthTV and many other networks globally; Tracy is a speaker, writer and an entrepreneur.
  1. Miniaturization for sure, will simultaneously increase the application spectrum, and reduce the REEs required for each of those new miniaturized products. Those two aspects might actually balance out to stabilize the overall demand. The 12 month target of $14.25 seems appropriate. December 2012 has been slated as a big month, not necessarily for the better.
    But, to me, miniaturization also screams ((((((GRAPHITE/GRAPHENE))))) !!

  2. NEO’S growth is tied to material applications growth. that growth has been impacted by skills base erosion and globalization of demand/supply shifts. until these factors are rebalanced with subsequent signiicant growth in new applications recipies, NEO’S growth is tied to new acquisitions.
    NEO must improve its stock’s PEG ratio. global economic malaise does not help here.

  3. Lack of interest has also been tied to the fact NEO’s shares are not listed on NASDAQ or an American Exchange, so it’s treated as a pink sheet stock and volume in the US are pathetically low. Has anyone ever asked why NEO wouldn’t list in the US to gain traction and get better prices for its shares?

  4. Good question, aurelius. I have always wondered why NEO’s share price is lower than it should be, and that may be an important factor.

  5. PE too low; same for five year avg earnings growth. earnings growth inconsistent. see NEM.TO @ YAHOO .COM-analyst estimates. PE should exceed mkt avg PE by significant amount, relecting recognition by mkt of growth stock. peel the onion when analysing PEG. get PE and consistent growth in earnings in proper range [ e.g.15 to 25 ] with PEG near 1; you’ve got a winner. a US listing might help PE, but consistent earnings growth is the key impedement.

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