NEO Performance Materials - Part 3: The Numbers Are Wrong
I spent a month reading every earnings call transcript, every MD&A, and every press release Neo Performance Materials has filed since 2022. The market is reading the wrong number.
Previously: Part 2 introduced Neo formally a TSX-listed advanced materials manufacturer with three segments, a 40-year IP lineage in magnetic powder production, the first sintered magnet plant in Europe, and the only commercial-scale rare earth separation facility on the continent. Its market cap sits at approximately USD 880 million despite a strategic position that, by almost any reasonable comparison, should command a materially higher valuation. The question I left open was whether the financials support the strategic narrative, or whether the cheap price reflects something real that the supply chain story glosses over. If you haven’t read Part 2, I’d start there.
NEO Performance Materials - Part 2: Meet the Company
Previously: Part 1 established why every humanoid robot, every EV traction motor, and every wind turbine generator requires neodymium-iron-boron permanent magnets and why the supply chain for those magnets essentially stops at the Chinese border once you get past ore extraction and, partially, separation. The four-step journey from mine to magnet has a
What the Market Is Reading
Pull up Neo’s stock chart and overlay it against revenue. The correlation is almost perfect, and almost perfectly wrong. Revenue fell from USD 571.5 million in 2023 to USD 475.8 million in 2024, then stayed flat at USD 478.8 million in 2025. In a market that equates top-line momentum with business quality, this looks like stagnation at best and structural decline at worst. The problem is that Neo’s revenue is partly a pass-through number. A substantial portion of Magnequench and C&O revenue is tied to rare earth commodity prices: when neodymium oxide prices fall, the selling price of the finished powder or chemical falls with it, because contracts are structured with commodity pass-throughs to protect margin. What this means is that when rare earth prices dropped sharply from 2022 peaks to 2023-2024 lows NdPr oxide falling from approximately USD 150 to 170 per kilogram at the 2022 peak to below USD 50 per kilogram at the 2024 trough - Neo’s revenue fell even as its volumes grew and its operational costs declined. A company that sells USD 100 million worth of product when the input commodity trades at USD 130 per kilogram will sell USD 40 million of the same product at USD 50 per kilogram, all else equal. Revenue falls 60%. Margin, if the pass-through is clean, is unchanged. The company’s intrinsic earnings power has not moved. The market’s interpretation of the revenue decline, however, moves decisively. This is the misread. And it is clearly visible once you stop looking at revenue.
Segment by Segment
Magnequench generated adjusted EBITDA of USD 28.4 million in 2025, up from USD 25.6 million in 2024 and USD 21.4 million in 2023. The trajectory is consistent: 20% growth in 2024, 11% growth in 2025. Over the same period, Magnequench’s volume grew 8% in 2024 and continued expanding in 2025, with bonded magnet volumes up 23% in 2024 (a record) and bonded powder in EV traction motor applications qualifying for next-generation platforms. In Q3 2025, Magnequench posted its strongest quarterly performance in over three years. The margin story within Magnequench is equally important. Management reduced conversion costs by 20 to 30 percent across key Magnequench products over the past two to three years. That is not a rounding error. It is a structural improvement in unit economics that will persist regardless of commodity price cycles. The revenue line does not capture this. The EBITDA line does.
Chemicals and Oxides is the segment that has weighed on group numbers in recent years. C&O processes rare earth oxides into specialty chemicals for automotive catalysts, phosphors, and polishing compounds. It is a volume business with lower margins than Magnequench, and it has faced headwinds from both low rare earth prices and softer automotive catalyst demand. In 2024, C&O adjusted EBITDA declined by USD 4.4 million, or 47%, becoming the drag on a group that otherwise performed well. In 2025, C&O delivered a significant recovery: adjusted EBITDA of USD 23.4 million, up from a suppressed base, driven by portfolio rationalisation (the sale of three underperforming manufacturing facilities announced in 2024, generating over USD 30 million in proceeds) and operational efficiencies. A declining company doesn’t beat EBITDA guidance by 17% in back-to-back years. Neo did exactly that in both 2024 and 2025.
Rare Metals is the segment the market currently cannot price. In 2024, it delivered a record USD 51.3 million in adjusted EBITDA, driven by exceptional hafnium pricing. Hafnium is a specialty metal used primarily in nuclear reactor control rods and semiconductor gate dielectrics. Its price is determined by a very thin market with very specific buyers. Neo is one of the few processors outside China capable of producing hafnium to nuclear-grade specifications. The record 2024 pricing was not expected to repeat, and it didn’t: Rare Metals delivered USD 43.2 million in adjusted EBITDA in 2025, down 16% but still above 2023 levels and well above any pre-2022 baseline. The story changed again in Q1 2026. Rare earth export controls from China, introduced progressively between December 2024 and April 2025, tightened further, and rare metal prices responded. Gallium, another Rare Metals product that Neo has positioned as a beneficiary of Chinese export restrictions; saw sustained pricing strength. Rare Metals EBITDA jumped to USD 23.9 million in Q1 2026 alone, up over 175% year over year. One quarter at this rate would imply approximately USD 96 million annualised from Rare Metals alone; before Magnequench and C&O contribute a single dollar.
The Numbers, Side by Side
| Métrica | FY 2024 | FY 2025 | Q1 2026 (Anualizado) |
|---------------------------|-------------|-------------|----------------------|
| **Revenue (USD)** | 475.8M | 478.8M | **620M+** |
| **Adj. EBITDA (USD)** | 64.4M | 75.6M | **145M+** |
| **EBITDA Margin** | 13.5% | 15.8% | **~23%** |
| **Magnequench EBITDA** | 25.6M | 28.4M | **~37M** |
| **C&O EBITDA** | 4.9M | 23.4M | **~28M** |
| **Rare Metals EBITDA** | 51.3M | 43.2M | **~96M** |Annualised Q1 2026 figures are extrapolations and subject to commodity price normalisation. Group EBITDA for FY 2023 was USD 37.2 million; segment-level breakdown for 2023 was not separately disclosed in full. Following the Q1 2026 results, Neo raised its full-year 2026 adjusted EBITDA guidance to USD 100 to 110 million an increase of approximately 35 to 45 % from the USD 75.6 million actually delivered in 2025, and up from the initial 2026 guidance range of USD 75 to 80 million that management had issued in March. The guidance raise came alongside a Q1 beat where adjusted EPS of USD 0.36 exceeded analyst consensus estimates of USD 0.185 - a beat of approximately 95%. The market’s initial response was to sell the stock 4% on the day of the Q1 announcement. The market is still reading the wrong number. Now look at the peer comparison.
| Company | Market Cap (USD) | What They Do | EBITDA Position |
|--------------------------------|------------------|---------------------------------------------------|------------------------------------------------------|
| **MP Materials** (NYSE: MP) | ~9.8B | Mine + separation + sintered magnets | FY2024: -$50.2M<br>FY2025: ~+$11M<br>Q1 2026: +$36.6M (record) |
| **Lynas Rare Earths** (ASX: LYC) | ~11.3B | Mine + separation only; no magnets | ~50x EV/EBITDA |
| **Neo Performance Materials** (TSX: NEO) | ~880M | Separation + powder + sintered magnets<br>(commercial scale, 30+ years) | ~9x EV/EBITDA on raised 2026 guidance |MP Materials - which posted its first meaningfully profitable full year only in 2025, supported by a Department of Defense price floor agreement that commenced in October of that year, and whose FY2024 adjusted EBITDA stood at negative USD 50.2 million commands a USD 9.8 billion market cap on the strength of its strategic narrative, Apple and Department of Defense backing, and the promise of what it is building. Lynas trades at roughly 50 times its own EBITDA for a business that stops at oxide separation and produces no magnets. Neo - the only company in the group that operates commercial-scale magnetic powder production and a fully operational sintered magnet plant with three decades of customer qualifications behind it trades at approximately 9 times its own raised 2026 guidance. The advanced materials comparable group trades at approximately 15 to 20 times EV/EBITDA. Neo trades at less than 10. MP is valued on what it is becoming. Neo is priced on trailing revenue from a commodity cycle trough, as if nothing has changed since 2022. Something has changed.
The Capex Signal
Capital expenditure tells you what management actually believes about the future, as distinct from what they say on earnings calls. Neo’s capex over 2023 and 2024 was dominated by one project: the Narva permanent magnet plant in Estonia. Total project cost: USD 75 million (original estimate), scaling to approximately 100€ million (USD 110 million) when project scope and financing costs are included. The European Union’s Just Transition Fund contributed a grant of USD 20 million (18.7€ million). Export Development Canada provided a USD 50 million term loan, announced in November 2024, maturing 2029. The effective cash outlay from Neo’s own balance sheet for a plant that could not be replicated by a new entrant for under USD 200 million, by the time you include land, permitting, process equipment, and the 18-to-36-month customer qualification period; was substantially subsidised by public bodies on both sides of the Atlantic. The plant was built in 500 days. It is operational. It is already shipping qualification samples to European automotive Tier 1 customers for traction motor platforms.
Bosch with 91€ billion in annual revenue and one of the largest e-mobility procurement budgets in Europe; signed a multi-year Memorandum of Understanding in September 2025 to reserve significant annual capacity from the Narva facility. That is not a press release. That is a customer with enormous procurement power choosing to anchor its European magnet supply at one facility, because no other Western option exists at this specification level. The incremental EBITDA contribution from Narva as it ramps toward full capacity in Phase 1A is not yet fully visible in the reported numbers. It will be.
The company the market is pricing at 9 times EBITDA has just completed the most strategically important piece of rare earth magnet infrastructure built in Europe since the Cold War. The company is pricing at nearly USD 10 billion with FY2024 adjusted EBITDA of negative USD 50.2 million and only turning structurally profitable in late 2025 with government price support is still ramping its first magnet line. There is a reason Neo is defensible at this position. But whether the moat is real or whether a well-capitalised competitor could erase it in three to five years; is the question Part 4 answers directly.
This article is for informational purposes only and reflects my personal opinion and analysis. I am not a financial advisor. Nothing written here constitutes financial advice. Always do your own research (DYOR) before making any investment decision.
I hold a position in NEO (TSX: NEO). Given the thesis outlined above, that is likely to increase even more.