Greenlane Renewables gets bullish new price

Beacon Securities analyst Ahmad Shaath says the new contract wins by Greenlane Renewables (Greenlane Renewables Stock Quote, Chart, News TSXV:GRN) are more validation of his investment thesis on the stock which contends that GRN is an renewable natural gas industry leader.

In an update to clients on Monday, Shaath reaffirmed his “Buy” rating and upped his one-year target from $1.10 to $1.30 per share.

Vancouver-based Greenlane, which provides biogas upgrading systems to produce RNG from organic waste, announced on Monday that it has signed $20.6-million in new supply contracts for biogas upgrading equipment. The biggest win in the company’s history so far, the contract is for a multi-location dairy farm cluster in California and is split into two contracts, one for $17.1 million for projects with committed financing and the other for $3.5 million for a project still awaiting financing approval.

Greenlane says the contracts should be delivered over the next 12 to 18 months. It’s the fourth and largest project to date for GRN to upgrade biogas to high quality RNG for injection into California’s gas pipeline system.

“This is a major contract win for us, representing over 185 per cent of 2019’s revenue, for a showcase project in the California dairy industry that will meaningfully contribute toward the State’s greenhouse gas reduction targets,” said Brad Douville, President and CEO of Greenlane, in a press release.

In his commentary, Shaath focused on the fact that the contract will be for installing pressure-swing adsorption systems, which he takes as a sign that GRN is both an industry leader in the technology and one that offers “a strong, solutions-oriented, technology agnostic, RNG-focused platform,” Shaath said.

With the wins, GRN’s current backlog nearly doubles, according to Shaath’s estimates, where prior to the new announcement the company’s equipment sales backlog stood at $22.6 million as of the end of Q1 fiscal 2020. The new win brings the company’s proforma backlog to $43.2 million, while its sales pipeline of $700 million as of Q1 2020 gives the new contract a three-per-cent conversion/win ratio.

Shaath has revised his forecast for Greenlane, now calling for fiscal 2020 revenue and adjusted EBITDA of $25.0 million and negative $0.3 million, respectively, and for fiscal 2021 revenue and EBITDA of $40.0 million and $2.3 million, respectively.

Shaath said GRN should see its valuation expand as it starts to realize the benefits of two of its unique partnerships, one with the Integrated Biogas Alliance which offers key partners across the RNG value chain and the other being a joint venture with SWEN Capital on the ‘Build, Own and Operate’ (BOO) front which should help establish a stable, recurring revenue base for the company.

“GRN continues to advance its discussions with financial and strategic partners to establish a North-America focused BOO partnership, which represents the most significant upcoming catalyst,” Shaath wrote.

Shaath says GRN remains relatively cheap as a stock in the cleantech field. “Given the strength in the backlog that is providing strong base for our FY21E estimates, we are moving our valuation base to FY21E sales. We continue to apply a 3.0x EV/Sales multiple, which yields our revised target price of $1.30 (was $1.10). At current valuation of 0.9x EV/Sales, well below renewable-gas-driven cleantech peers (average 8.7x, median of 2.8x), GRN shares represent an exceptional risk/reward trade,” Shaath wrote.

At press time, the analyst’s new $1.30 target represented a projected 12-month return of 233 per cent.