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Beacon cuts target on Greenlane Renewables, keeps “Buy” rating

Greenlane Renewables

Beacon Securities analyst Ahmad Shaath is still gallant in his views of Greenlane Renewables (Greenlane Renewables Stock Quote, Charts, Analysts, News, Financials TSX:GRN). Though he maintained a “Buy” rating in an update to clients on Friday, it came with a lowering of the target price from $2.15/share to $1.75/share for a projected return of 51 per cent.

Founded in 1986 and headquartered in Burnaby, B.C., Greenlane Renewables designs, develops, sells, and services a range of biogas upgrading systems, which remove impurities and separate carbon dioxide from biomethane in the raw biogas created from anaerobic decomposition of organic waste at landfills, wastewater treatment plants, and farms and for injection food waste facilities into the natural gas grid or for direct use as vehicle fuel.

Shaath’s latest analysis comes after Greenlane reported fourth quarter financial results Shaath deemed to be strong, with the target drop coming from a lowering of the valuation multiple from 4.5x EV/Sales to 3.5x EV/Sales.

Greenlane’s financial quarter was headlined by $17.1 million in revenue, which came in ahead of the Beacon Securities estimate of $13.4 million and the consensus projection of $13.6 million.

“Revenue benefited from relatively accelerated recognition on two projects that the company had existing inventory for,” Shaath said.

The company’s adjusted EBITDA also provided a beat for the company, as the $0.3 million report came in ahead of the consensus expectation of $0.1 million in EBITDA, as well as the Beacon Securities estimate of breaking even.

However, the quarter wasn’t perfect for the company, as higher general and administrative costs, paired with a slightly compressed gross margin of 24.8 per cent compared to 25.1 per cent, served to offset a portion of Greenlane’s revenue beat.

Further to the point on gross margin, the company has decided to withdraw its guidance in the category, which has historically been between 25 and 30 per cent, with management noting that the driver behind the decision is not operational, but rather falls back inline with the company’s corporate communication strategy of not providing guidance in general.

However, the company did end the quarter in the best sales position in its history, with a stable pipeline of $850 million in sales order backlog of $50.1 million, which includes an order valued at $7.1 million that the company signed just after the quarter end.

“2021 was another outstanding year for Greenlane as we advanced our business strategy focused on helping to clean up two of the largest and most difficult-to-decarbonize sectors of the global energy system: the natural gas grid and the commercial transportation sector,” said Brad Douville, President and CEO of Greenlane in the company’s March 10 press release.

“Looking ahead, we remain in a very strong position and are encouraged with the outlook for the RNG industry both in North America and abroad, as we continue to see expansion in both the transportation and natural gas utility sectors … Greenlane has strengthened its product offering through the acquisition of Airdep while establishing a footprint in Italy, one of the most dynamic RNG markets, creating new opportunities for sales of our biogas upgrading systems in the region.”

All told, the company ended the quarter with approximately $33.1 million in cash on hand with zero debt, with an aim to use some of the proceeds for M&A transactions, and another portion to fund project development.

“Management notes that discussions continue with multiple potential targets and the company feels confident about its ability to execute following the successful closing of its first transaction (Airdep),” Shaath said.

With fourth quarter results now officially in the books, Greenlane closed 2021 with total revenue of $55 million, up 139.1 per cent from the $23 million reported in 2020 and serving as an increase from Shaath’s $52 million estimate. Looking ahead to 2022, Shaath projects another jump for the company, this time to $70 million (previously projected at $68.3 million) for a potential year-over-year increase of 27.3 per cent.

In terms of valuation, Shaath forecasts the company’s EV/Sales multiple to continue its descent from 6.5x in 2020 to 2.7x in 2021, then dropping again to a projected 2.1x in 2022.

Meanwhile, the company broke into positive territory at $1.1 million in adjusted EBITDA for the 2021 fiscal year, representing a margin of two per cent. Looking ahead to 2022, Shaath reduced his projection from $3.2 million to $1.3 million, in effect changing his implied margin from 4.7 per cent to 1.9 per cent.

Shaath introduces EV/EBITDA multiple forecasts in 2021 at a hefty 135.7x, then dropping slightly to 114.8x in 2022.

Greenlane Renewables has seen its stock drop by 43.2 per cent over the last 12 months, punctuated by a 20 per cent loss since the start of 2022. The company’s stock has steadily gone down since hitting a 52-week high of $2.09/share on March 31, dipping as far as $0.99/share on March 7.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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