A new partnership looks good on EnWave, says iA Capital

Neil Linsdell of Industrial Alliance Capital Markets continues to have confidence in EnWave (EnWave Stock Quote, Chart, News, Analysts, Financials TSXV:ENW), reiterating his Buy rating and $1.10/share target price in an update to clients on Friday.

Vancouver-based EnWave is an applied technology company that licenses, builds and installs commercial-scale dehydration platforms for companies in the food, pharmaceutical and cannabis sectors. The company has developed the Radiant Energy Vacuum (REV) for dehydrating organic materials and has a subsidiary, NutraDried Food, that makes and sells dairy-based snacks.

EnWave announced on Thursday a strategic collaboration with German company Elea GmbH, the world’s leading provider of Pulsed Electric Field Systems (PEF) to the food, beverage and scientific sectors. EnWave said the partnership has it placing a 10kW REV machine at Elea’s pilot plant in Quekenbruck, Germany, to “showcase the material benefits of marrying the two technologies for the production of dried fruit, vegetable, meat, seafood, dairy and confectionary products,” with EnWave saying it will leverage the collaboration to drive new business and sales opportunities.

Looking at the announced collaboration, Linsdell said, “The partnership with Elea seems to be mostly related to joint marketing of their respective technologies, allowing both companies to demonstrate to potential clients how each of their systems can help to improve a client’s existing processes, with the hope that clients will want to use both systems.”

One Elea sales representative that will figure in prominently for EnWave going forward is ScanStore, which will now represent EnWave for European sales, particularly in the fruit and vegetable processing sector.

Though Industrial Alliance Securities projects EnWave’s revenue will drop to $24.3 million in 2021 from the reported $32.9 million in 2020, they also see the drop as an outlier, with Linsdell’s forecast putting EnWave’s revenues at $33.4 million in 2022, then rising to $42.1 million in 2023.

Linsdell also has the company’s adjusted EBITDA making its way into positive territory in the near future. After posting an adjusted EBITDA of -$3.2 million in 2020, Linsdell forecasts a drop to -$4.9 million for 2021 before jumping to negative $700,000 in 2022, then getting into the black with an estimated $4.5 million in EBITDA for 2023.

Linsdell has forecasts for key trading multiples starting in 2022, where he has the price-earnings ratio at 469.1x before dropping to 27.7x for 2023, where he also projects the EV/adjusted EBITDA to come in at 20.9x.

The Elea deal is just the latest in a series of moves made by EnWave over the last months, as the company has announced a number of new agreements to help expand its global reach.

In Colombia, EnWave has signed a commercial licensing agreement with the Colombian Dairy Company to produce crunchy, shelf-stable cheese snacks in Colombia for distribution throughout South America, while also selling a 10kw REV machine from the Colombian Dairy Company for production purposes.

EnWave struck a similar deal in France, with the Europe Snacks Group also purchasing a 10kW REV machine it had been testing since August 2020 as part of another commercial licensing agreement, which will see Europe Snacks produce crunchy, shelf-stable cheese as well as several vegetable snacks in France, with potential for additional scalability depending on the success of the products.

However, the company is not just limited to food products, as the REV technology will be crucial in EnWave’s new non-exclusive royalty-bearing commercial license with Medical Kiwi Limited in New Zealand, with another 10 kW REV machine heading there with the potential to export its dry cannabis flower to Europe and other markets. EnWave also signed a very similar deal with Australian company Cannaponics PTY Limited, who will also receive a 10 kW REV machine for its production efforts.

REV technology could also be making its way into the pharmaceutical industry soon, as EnWave signed a material transfer agreement with AstraZeneca to facilitate the trialling of REV technology for the dehydration of liquid monoclonal antibody formulations.

Though the forecasts haven’t changed ahead of expected quarter reports on August 26, Linsdell views the partnership between EnWave and Elea as a positive for EnWave in its European market penetration initiatives.

“This seems to be an interesting partnership, which we believe could lead to increased exposure and sales for EnWave, specifically in Europe,” he said. “Having space in Elea’s pilot plant in Germany also allows for more convenient demonstrations and more support for ScanStore in Europe. While there could be some future product enhancements from combining PEF and REV technologies, we see this collaboration more as joint marketing.”

EnWave closed the week trading at $0.97/share on the Canadian Venture Exchange, down two cents from its opening figure of $0.97/share, and the stock is down 16 per cent to this point in 2021 and down four per cent for the past 12 months. At the time of publication, Linsdell’s $1.10 target represented a potential return of 11.1 per cent.