Questor Technology is best in class, GMP says

GMP Securities analyst Justin Keywood remains impressed by cleantech company Questor Technology (Questor Technology Stock Quote, Chart, News TSXV:QST) after its latest quarter.

In an update to clients on Monday, Keywood reiterated his “Buy” rating and $7.25 target price, which represented a projected return of 61 per cent at the time of publication.

Calgary-based Questor released its fiscal second quarter, 2019, financials on Monday, coming in with revenue of $7.4 million, up 28 per cent from $5.7 million a year ago, and EBITDA of $3.6 million.

Company CEO and president Audrey Mascarenhas said Questor is now on pace for 2019 to be another record year for revenue and earnings.

“The strong performance in the first half of 2019 is a result of great effort by the Company to secure contracts and to continually succeed in accessing new markets. The North Dakota market and our initial entry into Texas, Wyoming and New Mexico are the drivers for our increased rental revenues. The entrance into the North Dakota market where aggressive environmental objectives requiring emissions control are in place, provided a significant increase in rental revenue in the first half of 2019,” Mascarenhas wrote in the accompanying press release.

Revenue was a touch lower than Keywood’s estimate of $7.7 million, while EBITDA was a little higher than Keywood’s $3.5 million estimate. Diluted EPS of $0.08 per share was in line with the analyst’s forecast.

In his update, Keywood had praise for Questor’s cash flow, which at cash from operations was a record at $4.8 million, up 58 per cent year-over-year and beat his estimate of $4.2 million. The company’s total cash balance grew 32 per cent sequentially to $9.5 million with no debt.

Rental revenue, which now accounts for about 70 per cent of the company’s revenue (equipment sales are at 20 per cent of the total and service are the remaining ten per cent), is the stickier and higher valued segment, according to Keywood, while the company’s Q2 EBITDA margin of 48.5 per cent was better than his estimate at 46 per cent.

The analyst says he sees QST’s valuation to track higher as the company’s solid growth continues and as clean air regulations across multiple regions continue to tighten.

“We see QST as supplying the best in class closed combustion systems to the oil and gas industry with strong expansion driven by regulatory changes and a pursuit for clean air. As additional states and regions enact and enforce stricter regulations, we expect QST to capitalize with its high ROI solutions as it has in Colorado,” writes Keywood.

“QST has recently secured $12 million of new contracts in North Dakota, Texas and Mexico as evidence and our discussions with regulators point to continued high growth ahead. We also see potential for QST to provide additional solutions to its customers and into new verticals. A diversifying, high ROIC business in expansion mode shows a compelling investment case at current valuation,” he writes.

Keywood is calling for fiscal 2019 revenue and EBITDA of $33.1 million and $17.3 million, respectively, and for fiscal 2020 revenue and EBITDA of $41.7 million and $21.7 million, respectively. Year-to-date, Questor’s share price is currently up 30 per cent.