MOU With LANXESS.  Yesterday, the Company announced it signed a MOU with LANXESS [XETR: LXS] covering three key areas, including the potential for LANXESS to become a contract manufacturer of Nofia, LANXESS to potentially produce the raw material for Nofia, and the potential for LANXESS to market Nofia into specific sectors or regions.  The MOU is significant for a number of reasons, first of which is that a key player in the global flame retardant space has declared that Nofia has the potential to “capture considerable growth” in the market. Specific to the MOU, LANXESS as a raw material producer and Nofia contract manufacturer could provide a low-cost, shareholder-friendly alternative to raising capital and building out new plants while providing better security for its supply chain.  Additionally, LANXESS marketing Nofia would provide immediate access to its current customers who buy its phosphorus and brominated flame retardants, as well as provide a new product for it to market where it currently only has brominated solutions, like ABS and engineered plastics. With the new electronic enclosures regulations set to go in effect shortly, this could be a valuable product for LANXESS to market to both maintain and win market share.  Given the need by LANXESS to find a product like Nofia in the next year to keep up with the regulatory changes, we expect the two parties will ultimately come to some kind of formal agreement that provides LANXESS with the ability to maintain and win market share and FRX the ability to rapidly and cost-effectively scale its customer base and operations.  

Q2:23 Results Expected.  FRX is expected to release its second quarter results next week.

Model Update.  As the LANXESS announcement is only at the MOU stage, we have refrained from making any adjustments to our model, but note a formal deal that covers all three areas could alter our model in a positive way.

Maintaining Rating & Target Price. 
The MOU with LANXESS is significant for a number of reasons, but ultimately to have the full impact a formal agreement will need to be signed in the near future.  However, with the validation of Nofia’s potential in the market from a market leader we feel even more confident about Nofia’s potential in the short-term and long-term.  With continued optimism, we are reiterating our Buy rating and C$0.75 target price on FRX Innovations. Our target price is based on a mix of an EV/EBITDA multiple of roughly 10 times our 2025 EBITDA estimate of $6.8 million and a P/E multiple of 20 times our 2025 Diluted EPS estimate of $0.04, both discounted back one year at 20%.