Cleantech stock H2O Innovation is still looking cheap, Haywood says

With some delayed projects due to come online, Haywood Securities analyst Pardeep Sangha is feeling good about the prospects of H2O Innovation (H2O Innovation Stock Quote, Chart, News: TSXV:HEO).

On Wednesday, February 14, H2O will report its Q2, 2018 results. Sangha expects the compan will generate Adjusted EBITDA of $1.1-million on revenue of $24.1-million, an improvement over the same period last year, when the company posted EBITDA of $800,000 on a topline of $20.0-million. His estimates put him slightly ahead of the street consensus estimates of revenue of $23.3-million and EBITDA of $1.0-million.

Sangha says he expects H2O’s Projects division will drive growth as previous contract delays dissipate and new projects come online.

“During the quarter, the company announced the renewal and extension of two operation and maintenance contracts totalling $14.2M,” the analyst notes. “Subsequent to the end of the quarter the Company announced seven new contracts and one contract extension for total value of $13.1M. The Company’s most recently announced Project backlog stands at $56.1M, and its O&M backlog at $62.5M for a total of approximately $118.6 compared to 105.3M at the end of Q1FY18.

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $2.25 on H2O Innovation, implying a return of 80.0 per cent at the time of publication.

Sangha thinks H2O will generate EBITDA of $4.1-million on revenue of $99.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $7.5-million on a topline of $113.5-million the following year.

Sangha says on the conference call following the results he will be listening for progress on delayed projects, update on the company’s order backlog, progress on the creation of cross-selling opportunities between O&M division with other divisions in the company, and any new acquisition opportunities that might happen in the near term.