Greenlane Renewables can deliver big returns, says Paradigm Capital

Paradigm Capital analyst Jason Tucker likes the look of Greenlane Renewables (Greenlane Renewables Stock Quote, Chart, News TSX:GRN) as a Canadian play in the renewable natural gas market.

The analyst reviewed GRN’s latest quarterly results in an update to clients on Thursday, saying the
company’s sales pipeline and backlog are reasons to believe the company will keep growing.

Vancouver-based Greenlane, which makes biogas upgrading systems to generate renewable natural gas (RNG) from organic waste at landfills, wastewater treatment plants, farms and food waste facilities, released its fourth quarter and full-year 2019 financials on Tuesday, showing Q4 revenue of $3.3 million and a net loss of $1.0 million.

2019 was a foundational year for the company, according to management, with the acquisition of PT Biogas, an $8.4-million financing raise and a 50-per-cent increase in its sales pipeline, now valued at over $680 million.

“In 2020, we’ve continued to grow our sales pipeline and have recently seen an increase in sales activity based on the premise that business partners and customers alike are working from home and increasing their focus on our existing and new proposals.

Additionally, we’re gaining traction in our new build, own, operate initiatives, together with project equity partners, to scale our capacity to finance projects as we ramp up this new part of the business,” said CEO Brad Douville.

With respect to COVID-19 and its impact on the business, Douville said Greenlane is fortunate to have an asset-light business model, operational flexibility and an outsourced supply chain, all elements that will help it weather the crisis. At the same time, the company cautioned that revenues will remain lumpy from quarter to quarter, depending as they do on the timing of new contract awards and project timelines for GRN, which has a relatively small number of large biogas upgrader orders at any given time, each
with its own timeframe for completion.

Still, the market outlook is strong, according to the company, which argued that reaching five per cent RNG content in North America’s gas distribution network alone would mean about US$18 billion in biogas upgrading equipment sales.

For his part, Tucker saw GRN beating his quarterly EBITDA forecast while coming in under on revenue. For the Q4, the analyst was calling for fourth quarter revenue of $5.3 million and an EBITDA loss of $0.8 million or EPS of $0.01 per share, compared to GRN’s results of revenue of $3.3 million and an EBITDA loss of $0.3 million and EPS loss of $0.02 per share.

Tucker noted that GRN’s backlog grew sequentially to $16.2 million from $9.6 million over the Q4 with an additional $7 million already accounted for in 2020, while sales grew over the quarter from $660 million to $680 million.

“GRN has been able to penetrate the North American market, a market that we believe will begin to outpace more mature markets in European countries. The movement toward carbon neutrality is no passing fad. The market is poised for continued growth and RNG will play a significant role,” Tucker said.

With the update, the analyst has maintained his “Buy” rating and $1.20 target price for Greenlane, saying that while some delays in delivery timelines might result from the COVID-19 crisis, the company has reported increased customer inquiries over the past few months.

Tucker’s $1.20 target represented at press time a projected 12-month return of 176 per cent.

“It is still early innings for RNG and we believe the industry has the potential for exponential growth in the coming years as countries and companies race to meet carbon targets. As such, we believe Greenlane represents an excellent opportunity to play the RNG market,” Tucker wrote.