Pure Technologies (TSX:PUR) isn’t cheap, but the company has earned its premium and still has more upside, says Mackie Research Capital analyst Raveel Afzaal.
In a research update to clients yesterday, Afzaal maintained his BUY recommendation, but raised his one-year target price from $6.50 to $8.00.
Afzaal says last Thursday’s Q4 numbers from Pure were below his expectations, both on the top and bottom line. He expected the company would generate adjusted EBITDA of $6-million on revenue of $21.9-million. Instead, Pure posted EBITDA of $4.3-million on revenue of $17.2-million.
But the Mackie Research Capital analyst says there are some key drivers that he believes will allow the company to deliver revenue growth of 20% and EBITDA margins of about the same going forward. He says Pure should see success targeting smaller North American utilities, and will benefit from continued adoption of its smart ball technology and increased inspection of metallic and wastewater pipelines.
Afzaal says Pure continues to trade at premium valuation multiples, but says he believes the company fully deserves to because it represents a rare opportunity for investors to gain exposure to infrastructure renewal theme in the water and wastewater infrastructure market. What’s more, he says, the company has a strong enough balance sheet that it was able to declare its first ever quarterly dividend of $0.03 a share, a decision he regards as “prudent” given the fact that it ended the year with $41-million in cash and has no debt.
At press time, shares of Pure Technologies were down 2.6% to $6.82.