EnWave is looking good in 2022, says iA Capital

Neil Linsdell of iA Capital Markets believes EnWave Corp (EnWave Stock Quote, Chart, News, Analysts, Financials TSXV:ENW) is starting to pick up some steam this year. The analyst maintained his “Buy” rating and target price of $1.85/share for a potential 90.7 per cent return in an update to clients on Monday.

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 EnWave reported first quarter results for its 2022 fiscal year, headlined by revenue of $6.3 million, which rests comfortably between the iA estimate of $5.7 million and the consensus target of $7.1 million, though it also represents a 16 per cent year-over-year decrease.

Enwave Canada proved to be a strong sales driver in the quarter, as its reported $4.1 million in revenue represented a 51.9 per cent year-over-year increase and accounted for nearly two-thirds of the company’s revenue mix, with the growth coming from a 65.4 per cent increase in REV machine sales.

However, those positives were offset by a 54.1 per cent decline in NutraDried product sales to $2.2 million, with the same quarter of 2021 featuring a BOGO sale at Costco.

“Our outlook is far stronger than the numbers suggest,” said CEO Brent Charleton in the quarterly conference call. “We believe NutraDried’s Q1 performance to be an anomaly due to the fact we dealt with poor weather at the end of Q1 that pushed a material amount of Costco volume into Q2. But on the flip side, NutraDried recently confirmed major new distribution, a credit to the new leadership and reinvigorated team that will hit later this year.”

Excluding NutraDried from the equation, Enwave’s royalties reported a 57.8 per cent year-over-year increase to $505,000, with management providing guidance toward an annual projection between $1.5 million and $2 million, potentially doubling the $919,000 total posted in 2021 thanks to an expanding installed base, and quick turns as new cannabis units are commissioned.

Enwave’s adjusted EBITDA also provided an encouraging sign at a reported positive $300,000, beating the projections of both the consensus ($100,000 loss) and iA ($200,000 loss), and coming out well ahead of the $900,000 loss posted in the same quarter of 2021.

“The next few quarters will be much more positive with the new launch of Moon Cheese Sticks starting at Whole Foods Market, likely higher bulk cheese sales, and more product sales into retail channels,” Linsdell said. “Shipments for Costco Canada were deferred from FQ1 to FQ2 due to weather and two major distributors reduced inventory levels despite increasing deliveries into Retail channels, suggesting a pickup this quarter.”

With first quarter results now official, Linsdell’s financial projections undergo a few modifications, as he now projects 2022 revenue to be $34.2 million instead of $35.9 million, though the revised figure still implies a year-over-year increase of 29.1 per cent. Linsdell has also changed his forecast for 2023, as he now projects revenue of $51.6 million (previously $51.3 million) for a potential 50.9 per cent year-over-year increase, with his 2024 estimate now set at $61.7 million (previously $59.9 million), good for a potential 19.6 per cent year-over-year increase.

2022 appears to be a pivotal year in Linsdell’s projections, as he forecasts a move to positive adjusted EBITDA of $3.5 million (previously $3.1 million) for a margin of 10.2 per cent. Looking into 2023, Linsdell foresees the EBITDA moving to a projected $8.9 million (previously $9 million) for a margin of 17.2 per cent, while he projects the 2024 adjusted EBITDA to be $12.4 million (previously $11.2 million) for an implied margin of 20.1 per cent.

Meanwhile, Linsdell forecasts the company’s EPS to be zero in 2022 (previously a loss of $0.02/share), then increasing to $0.05/share in 2023 (previously $0.04/share), and $0.08/share in 2024 (previously $0.05/share).

Linsdell’s key trading multiples come into play beginning in 2022, with the EV/adjusted EBITDA multiple projected at 28.2x, and the P/E multiple now projected at 648.3x. Linsdell then forecasts significant drops for both multiples in 2023, with the EV/adjusted EBITDA dropping to a projected 11.1x and the P/E multiple dropping to 19.2x, followed by further descents in 2024 to an EV/adjusted EBITDA multiple of 8x and a P/E multiple of 12.6x.

“The Company is working towards consistent profitability with strong machine sales, particularly with Dole and in the US cannabis market,” Linsdell said. “It has a strong pipeline of prospective clients and repeat orders from existing clients, which bode well for pipeline conversion and increasing royalty payments.”

EnWave’s share price has dropped by 38.6 per cent over the last 12 months, though there are signs of momentum with a 2.1 per cent return since the start of 2022. February 11 saw the stock hit a 52-week low of $0.84/share, a long way off the 52-week high of $1.63/share, set on April 9.