EnWave is making global inroads, iA Capital reports

Neil Linsdell of iA Capital Markets believes EnWave Corp (EnWave Stock Quote, Chart, News, Analysts, Financials TSXV:ENW) will continue to make waves, maintaining his “Buy” rating and target price of $1.85/share for a potential 69.7 per cent return 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.

EnWave announced on Wednesday its market entry into India with M/S Lalsai Dehy Foods for vegetables, herbs, spices and dairy products. Under the terms of the agreement, Lalsai Dehy Foods, a manufacturer of dehydrated vegetables and spices through hot air-drying technology which exports to 17 countries, will rent a 10kW REV machine to develop new ingredient and snack products at its processing facility in Mahuva, Gujarat – an agricultural hub for onion production in India. Should the initial production produce commercially viable ingredients and snacks, EnWave says Lalsai Dehy will purchase REV machinery to begin commercial production at the Gujarat facility.

“The expansion of EnWave’s global REV technology footprint into India further proves the significant value proposition for food producers seeking to launch new and innovative premium ingredient and snack food applications. EnWave has developed a comprehensive intellectual property portfolio with patents granted in numerous international markets and has licensed REV technology to more than forty-five companies in twenty-one countries worldwide,” the company said in a press release.

On top of the developments in India, EnWave continues to make inroads with its REV technology, having signed a royalty-bearing commercial license agreement with a second multi-state cannabis operator in the United States, where legal cannabis sales are expected to reach US$41 billion by 2026.

The multi-state operator also purchased one of the company’s 120 kW REV machines, one of the two EnWave recently repurchased, along with one 10 kW REV machine, after they had been sold but never installed.

On the India announcement, Linsdell said, “The company continues to demonstrate the value proposition of its REV-dried technology across various food products and broadens its customer base with this expansion into India.”

Linsdell also noted that the company’s partnership with Dole, which began in late 2020, continues to bear fruit and, in tandem with the India conversations, encourage more companies to look in EnWave’s direction.

“The recent large machine sale into another US cannabis MSO is likely to prompt more players to step up and we believe that the recent Dole partnership could lead to a further dramatic increase in REV unit sales,” Linsdell said.

EnWave also recently announced a new Protein Blitz Mix product line in its most recent quarter, along with smaller packaging formats for its Moon Cheese line of products, with a one-ounce offering available in checkouts in 400 Wal-Mart stores across the United States, and further growth in format and product placement possible depending on the success of the one-ounce product. 

All told, the company shipped over 100,000 pounds of cheese to continue its pivot toward bulk sales for third-party companies to use as ingredients in trail mixes, salad toppings, and other food products.

Linsdell said EnWave is also expanding its operations through the implementation of REVworx, which offers new customers the possibility to run limited commercial volumes for product trials, and is expected to be implemented by the end of the year.

“Toll manufacturing not only provides a new revenue stream for the Company, but should also help to convert these customers to royalty partners with REV unit sales as they move to higher volumes,” Linsdell said.

Linsdell’s financial projections remain unchanged from his previous analysis, 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 slight modifications, with the EV/EBITDA multiple now projected at 25.4x (previously 24.9x), and the P/E multiple now projected at 131.9x (previously 129.4x). Linsdell then forecasts significant drops for both multiples in 2023, with the EV/EBITDA dropping to a projected 14.2x (previously 13.9x) and the P/E multiple dropping to 23.8x (previously 23.4x).

Overall, EnWave’s share price is up one cent (0.9 per cent) for the year to date, fluctuating on either side of the breakeven line in recent months, though its high point for the year was $1.74/share on February 10.