Cavendish has initiated coverage of Mkango Magnetic Materials (formerly known as Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)), the rare earth magnet recycling group, with a 'buy' rating and a 110p target price.
The target compares with a 41.4p share price in the 29 September note, implying 166% upside based on the broker's risk-adjusted valuation.
Cavendish's central investment case rests on HyProMag, Mkango's recycling business, which uses patented Hydrogen Processing of Magnet Scrap technology to recover reusable alloy powder from spent neodymium-iron-boron magnets.
The broker expects Mkango's facilities in the UK and Germany to move towards commercial scale during 2027, while its United States joint venture targets first magnet production in the first half of 2027 and integrated recycling from 2028.
Cavendish forecasts revenue of $15.5 million in 2027, rising to $70.5 million in 2028 and $98.3 million in 2029 as production increases.
The model also sees adjusted earnings before interest, tax, depreciation and amortisation improving from a $2.8 million loss in 2027 to $27.5 million in 2028 and $44.2 million in 2029.
By 2031, Cavendish estimates Mkango could generate more than $60 million of annualised EBITDA from the three HyProMag ventures at base-case capacity, with a 50% margin.
The broker expects Mkango to become free cash flow positive in 2028 after the European operations ramp up, although its forecasts assume a $20 million (£15 million) funding injection by the end of 2026.
That funding assumption reflects the need for working capital during commercialisation and the planned purchase of University of Birmingham-owned equipment and infrastructure at Mkango's UK facility.
Cavendish separately values Mkango's recycling assets at 60p per share and assigns a further 49p per share to its proposed holding in MKAR, the planned Nasdaq-listed vehicle containing its Malawi and Poland projects.
The broker identifies completion of the MKAR transaction, commercial scale-up in Europe and funding for the United States project as key catalysts, while warning that commercial performance, funding and future rare earth prices remain significant uncertainties.
