Opportunities abound for EnWave, says iA Capital

Neil Linsdell of iA Capital Markets continues to ride momentum generated by EnWave Corp (EnWave Stock Quote, Chart, News, Analysts, Financials TSXV:ENW), maintaining his “Buy” rating and target price of $1.85/share in an update to clients on Thursday.

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.

Linsdell’s latest analysis comes after iA Capital Markets hosted EnWave’s Chief Executive Officer, Brent Charleton, and Chief Financial Officer, Dan Henriques, for virtual investor meetings last week.

“Overall, the presentations and discussions reaffirmed our previously expressed view that many past problems are behind the Company and that opportunities are growing among all of the different segments of its operations,” Linsdell said.

According to Linsdell, the company repeated confidence in its sales targets for its REV units, with an expectation of selling 10 large (60kW+) units and 15 smaller (10kW) units in the 2022 fiscal year, with the company’s optimism attributed to existing clients with smaller units upgrading to larger units, increased interest from US cannabis producers as EnWave now has more lab tests to confirm claims of better characteristics of REV-dried flower versus air-dried, and continuing discussions among numerous partners, most notably, Dole, for the production of fruit and vegetable snacks and ingredients.

“We believe that the two biggest opportunities over the next 12 months will be the Dole relationship, which we believe includes multiple projects in both snack production and the development of ingredients to be used in other products, and the US cannabis sales pipeline, as EnWave now has controlled test results to empirically support their value proposition,” Linsdell said.

EnWave will look to continue its positive momentum after reporting $7.4 million in revenue for its third quarter in August, a 57.4 per cent quarter-to-quarter increase and 23 per cent year-over-year increase, driven by a rebound from NutraDried to $3.8 million (62 per cent quarter-to-quarter increase, 14 per cent year-over-year decrease) and a pivot to selling its REV-dried cheese in bulk for partners to include as ingredients.

Linsdell views the company’s pivot as highly sustainable going forward, with his expectations buoyed by several new product launches, and a newly engaged US broker to lead a rapid recovery of cheese snack sales, with expansion at several retail partners and first shipments into new retail partner Walmart expected this quarter.

Furthering the company’s case in entering the cannabis industry, EnWave has signed a royalty-bearing commercial license with AusCo, which has purchased a 10kW REV machine that will be used to dry cannabis flower for use in medicinal products, becoming the fourth company in Australia to purchase a REV machine.

In addition, Scitek, EnWave’s exclusive channel partner representing REV technology in Australia, has purchased a REV machine from Helius Therapeutics for the purposes of showcasing the technology’s capabilities to a plethora of new potential licensees in both the food and cannabis verticals. The machine will be based in Melbourne, and it will be available to any interested third-parties for testing and product development.

Linsdell’s financial forecasts remain unchanged, as he continues to project $26.7 million in revenue for 2021, marking a projected 18.8 per cent year-over-year decrease. However, Linsdell expects a rebound in the following years, forecasting $35.5 million in revenue for 2022 for a potential 33 per cent year-over-year increase, followed afterward by another jump to a projected $43.5 million in 2023, marking a potential 22.5 per cent year-over-year increase.

2022 appears to be a pivotal year in Linsdell’s projections, as he forecasts a move to positive EBITDA of $4.2 million for a margin of 11.8 per cent, as well as positive EPS of $0.01/share. Looking into 2023, Linsdell foresees the EBITDA moving to a projected 7.5 million for a margin of 17.2 per cent, with EPS increasing to $0.05/share.

Linsdell’s key trading multiples come into play beginning in 2022, with the EV/EBITDA multiple projected at 24.9x and the P/E multiple projected at 129.4x. Linsdell then forecasts significant drops for both multiples in 2023, with the EV/EBITDA dropping to a projected 13.9x and the P/E multiple dropping to 23.4x.

With its previous issues now a thing of the past, Linsdell is confident in EnWave’s ability to return to previous profit levels.

“We see more institutional investors taking notice of EnWave as it has successfully navigated a difficult environment and as we anticipate further contract announcements, partnerships, and return to solid profitability,” Linsdell said.

EnWave’s stock price is down 3.6 per cent for the year to date, reaching a high point of $1.74/share on February 10. At press time, Linsdell’s maintained $1.85 target represented a projected one-year return of 72.9 per cent.