EnWave Corporation (Quote, Chart TSXV:ENW) has received a price target raise from Industrial Alliance Securities analyst Neil Linsdell, who says the company’s third quarter financials beat his estimates for revenue and for EBITDA.
Makers of commercial-scale dehydration platforms, Vancouver-based EnWave reported its fiscal third quarter ended June 30, 2018, financials yesterday, posting a 45 per cent uptick in revenue to $6.8 million and a positive EBITDA at $349,000, better than last year’s $9,000 loss over Q3.
Linsdell says that ENW’s revenue beat his $5.5 million forecast and was driven by Moon Cheese sales being up 174 per cent year-over-year.
The analyst says EnWave’s most significant announcement over Q3 was the sale of a second unit of its proprietary Radiant Energy Vacuum (REV) technology to NutraDried in order to double the production of Moon Cheese in the fall, creating a capacity of roughly US$40 million in annual revenue.
“Although Moon Cheese is available in 25,000 locations in North America, we see the biggest driver of this growth being the ongoing roll-out through Costco as Moon Cheese is now distributed into five divisions in the US (up from three last quarter),” says Linsdell in a note to clients on Wednesday. “Another 10kW REV unit destined for NutraDried also signals further product development, and new flavours to broaden the product line, driving an even faster ramp up in sales.”
So far, EnWave has entered into 24 royalty-bearing commercial licenses with major food processing, medical cannabis and pharmaceutical companies with its REV technology. Currently, the company is building its third unit for cannabis company Tilray, from whom the first commercial royalties are expected before the end of 2018, according to Linsdell, who says that as its installed base and commercial production grows, EnWave should see its royalties ramp up.
“We continue to use a combination of EV/EBITDA and DCF to derive a target price of $1.70, up from $1.60,” says the analyst. “Given the significant ramp-up in sales expected over the next few years, we are looking to our F2020 (September year-end) EBITDA forecast of $11.6 million (up from $11.5 million), and applying a 15x EV/EBITDA multiple before discounting back 15 per cent (previously 20 per cent) as we advance through F2018, to a F2019 target of $1.70. We use a DCF analysis with a 12.5 per cent discount rate and 10x terminal EBITDA multiple to also derive a $1.70 target price.”
Linsdell has revised his estimates, now expecting revenue and EBITDA in fiscal 2018 of $22.5 million (was $20.2 million) and $0.6 million (was $0.2 million), respectively, and revenue and EBITDA in fiscal 2019 of $35.9 million (was $29.6 million) and $6.9 million (was $4.9 million), respectively.
At the time of publication, Linsdell’s $1.70 target represents a projected 12-month return of 38.2 per cent.