3D Printing market is set for explosive growth
SmallCapPower | November 16, 2016: Although the industry has been around since the mid 1980s, it wasn’t until 2009 that it started to take the form that we know today. From producing engine parts and dental implants to prototyping and tooling, 3D Printing is creating benefits not just for large established companies, but also for start-ups trying to compete in an ultracompetitive and capital intensive market.
Additive Manufacturing (i.e. 3D Printing) printing is quickly being adopted as a complementary production process to conventional manufacturing. The value of the sector has exploded, with revenue expected to reach a record USD$15.9 billion for 2016, and compound annual growth expected to exceed 22% to 2020, to reach USD$35.4 billion according to Staistia.
PyroGenesis: A Company Poised to Capitalize on the Trend
PyroGenesis Canada Inc. (TSXV: PYR) (“the Company”) is a Montreal-based world leader in the design, development, manufacture and commercialization of advanced plasma processes. In 1996, the Company invented technology to produce titanium powders using plasma atomization technology, which it used to produce powders from 1998 to 2004 for the biomedical industry. The biomedical industry sought PyroGenesis’ powder due to its flowability, which was a result of the sphericity of the powder. PyroGenesis sold its powder-producing division to Raymor Industries (named Advanced Powders & Coatings or AP&C) in 2006 along with the exclusive rights to use the technology up until 2012.
PyroGenesis has since improved its technology, investing approximately $2mm last year alone, to increase the Plasma Atomization systems production rate and tighten the particle size distribution. Today, PyroGenesis’ Plasma Atomization system produces powders that in large cater to the Additive Manufacturing Industry (Figure 1 illustrates a diagram of PyroGenesis Plasma Atomization Process). Currently, the majority of the powder demand is for Titanium and Titanium alloy spherical powders. The Plasma Atomization system allows for the production of very fine metallic powders all while retaining the chemical purity of said powders. It is this unique production method, and the highly spherical and pure powder it produces, which enables PyroGenesis to bring tremendous value to the Additive Manufacturing sector.
Powder production will commence in Q1 2017 via PyroGenesis’ first Plasma Atomization unit. PyroGenesis has plans to further expand its capacity in the near future to meet the growing demand from the Additive Manufacturing (AM) Industry, with the ultimate goal of becoming the leading supplier of spherical metallic powders for the AM sector.
In a report released by KPMG, titled “Global Manufacturing Outlook,” it surveyed 360 senior executives and found that 25% of respondents had already invested in 3D Printing technologies, with 31% saying they will definitely invest and 35% saying they will probably invest in the next 12 to 24 months. This creates a significant opportunity as more companies see the cost-benefits of 3D printing, which will ultimately lead to shorter product development lifecycles as prototyping and manufacturing processes become more efficient.
What value does 3D Printing bring?
There are many companies coming into the 3D Printing space by either producing printers and/or creating software used to aid in the design of parts. There are few companies who are bringing the capability of producing spherical powder at a commercial scale; such as Titanium. PyroGenesis had the capacity to produce these powders in the mid 1990s, and is once again getting back into producing powders starting Q1 2017. With Arcam (AP&C) potentially being locked up by GE, an opportunity has presented itself to invest in an undervalued company! Arcam, which purchased PyroGenesis’ original technology (via AP&C), is currently trading at an EV/S ratio of 9.1x, while SLM Solutions (ETR:AM3D) is at a 6.5x EV/S. Both of these companies have seen their market cap return to pre-GE takeover announcement levels so these ratios have not been inflated. Compare this to PyroGenesis, which is trading at a slightly lower EV/S ratio of 5.1x. Even so, when compared to similar companies within Canada you can see that there is an undervaluation of PyroGenesis. Graphene 3D Inc, (TSXV: GGG) is also trading at an EV/S ratio of 10.2x; just about double that of PyroGenesis.
This discrepancy in valuations could be a sign that the market is seriously undervaluing PyroGenesis. Although they are coming off a poor six-month performance, which Company President & CEO Peter Pascali attributed to a shift in strategy that will see PyroGenesis selling powders rather than selling PAP systems. As of June 30th the Company had a backlog of more than $11 mm; which is almost double its 12-month trailing revenue. According to a report produced by Canalys, Arcam’s 2015 market share of spherical powder revenue was between 50% and 70% (roughly CAD$17 mm). This suggests a total market size of $23mm to $34 mm in 2015. Conservatively applying a 20% compounded annual growth rate (estimated based on the industries expected CAGR 22% and Arcam’s increase in metal powder revenue of more than 40% from 2014 to 2015) further suggests a total market potential of $35mm to $49 mm for 2017. It is highly feasible, with one system, for PyroGenesis to capture 5% of the 2017 market; which would equate to an impactful increase in revenue over 2016. With an average sale price of between $200 to $400 per kilogram, $2.5mm (5% of $49mm at $200/kg) in sales represents 12.5 tonnes of powder, well within the capacity of one PAP system. Remember these are all conservative numbers and actual growth, and if trends continue results should surpass these estimates.
Recent Activity in the Market Validating its Importance
General Electric’s (NYSE:GE) recent proposal to acquire Arcam and SLM demonstrates the value that one of the largest manufacturers in the world is placing on having 3D Printing capabilities. GE also announced on October 27th that it had reached a deal to acquire 75% of Germany’s Concept Laser for USD$599mm, with terms to allow a full takeover of ownership in a few years. In addition, 3D Hubs, a company that won the Inside 3D Printing Startup Competition back in 2014, has recently made its first acquisition, Printivate. 3D Hubs is a platform that brings together those that have 3D printers to those that need them and by acquiring Printivate, looks to lower the failure rate of printer products by implementing Printivate’s software to simplify designs by reducing the number of vertices and faces that a product has.
With the expectation being that the 3D metal printing market will outstrip the supply of metal powders in coming years, the question isn’t whether PyroGenesis will secure orders, but how many.
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