NutraDried sales continue to ramp up for EnWave (EnWave Stock Quote, Chart, News TSXV:ENW), as analyst Neil Linsdell of Industrial Alliance Securities continues with his bullish stance on the stock.
Linsdell reviewed EnWave’s latest quarterly results in an update to clients on Wednesday and reiterated his “Buy” rating and $2.75 per share target price, which represented a return of 55.4 per cent at the time of publication.
Vancouver-based EnWave released its fourth quarter ended September 30, 2019, financials on Wednesday, featuring revenue up 120 per cent year-over-year to $16.2 million and adjusted EBITDA of $864,000, down 34 per cent from a year earlier.
2019 was a milestone year for EnWave, which markets its Radiant Energy Vacuum (REV) dehydration technology to markets such as food, pharmaceuticals and cannabis. Over the year, EnWave’s NutraDried Food Company expanded distribution of its Moon Cheese product and increased sales through a coupon participation with Costco, while on the commercial licensing side, EnWave signed 14 new royalty-bearing agreements, seven of which were in cannabis and hemp and six in the food products vertical.
Linsdell says that EnWave’s $16.2-million top line was better than his $15.2-million estimate, with $11.9 million of sales coming from NutraDried’s Moon Cheese and $3.8 million from the sale of REV units. Profitability was also better than expected, according to the analyst, who was forecasting adjusted EBITDA of $31,000 versus the company’s $864,000.
“As expected, there was a significant boost to revenue but lower margins in Q4/F19 as a results of Costco’s most valuable member program. Given the inventory build-up at Costco we expect Q1/F20 sales to be slower, and that significant sales & marketing efforts for Moon Cheese will put some pressure on F2020 profitability, but that increasing focus on the retail grocery and convenience store channels will offer new growth opportunities and reduce client concentration risk,” wrote Linsdell.
Concerning cannabis, EnWave has agreements with both Tilray and Aurora, with Tilray having exclusive rights to use and sub-license EnWave’s REV technology for cannabis in Canada, while Aurora holds REV exclusivity for cannabis in Europe. With the downturn in cannabis, however, delays in facility expansion have occurred, but as Linsdell points out, EnWave management has said that delays in Canada are currently being offset by a robust opportunity internationally — also on Wednesday, EnWave announced a royalty-bearing license agreement with Helius Therapeutics Ltd, New Zealand’s largest licensed medical cannabis company.
Looking ahead, Linsdell sees ENW generating fiscal 2020 revenue and adjusted EBITDA of $61.1 million and $7.3 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $74.5 million and $14.5 million, respectively.
“Ongoing announcements of progress and orders with partners across various markets provide further support to our positive outlook, which includes still significant growth from EnWave’s wholly-owned subsidiary NutraDried, as it continues to roll out Moon Cheese snacks through multiple channels,” Linsdell added.
EnWave posted strong gains over the first half of 2019 but the stock has dropped significantly since mid-June. Year-to-date, ENW is up 24 per cent.