Exro Technologies is a Buy, says Haywood

Colin Healey of Haywood Capital Markets remains compelled by the potential of EXRO Technologies (Exro Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:EXRO), maintaining a “Buy” rating and target price of $5/share for a projected return of 281.7 per cent in an update to clients on May 11.

Calgary-based Exro Technologies develops and commercializes patented coil driver technology and proprietary system architecture for power electronics. In particular, the company is focused on its patented Coil Driver technology, which the company is marketing to reduce the cost and complexity associated with deploying electric vehicle infrastructure at scale.

Healey’s analysis comes on the heels of Exro Technologies announcing its second commercial agreement for its 100-volt system, this one coming with a Boston-based company called ev Transportation Services, Inc. (evTS), and it follows the deal Exro signed with B.C.-based bus company Vicinity Motor Corp, which called for the delivery of 2,500 units over a 36-month period likely commencing by year-end 2022.

“Today’s deal is very similar to last week’s deal structure with Vicinity and will see Exro supply a complete integrated propulsion system, including a drive motor from its partner TSA, engineered to Exro’s specifications and with Exro’s Coil Driver inverter integrated,” Healey said.

Like the Vicinity deal, the evTS contract is initially scheduled for three years and is forecast to oversee the delivery of 1,000 of Exro’s 100-volt power units for use in the evTS fleet of Firefly ESV (essential service vehicles), including functions such as parking lot security, light delivery and property maintenance, among others.

Though the company did not disclose the full size of the partnership it indicated that deliveries would begin in 2023, with Healey forecasting the deal to exceed the initial 1,000-unit quantity.

“We expect this deal has the potential to grow over the 36-month term, possibly by 50 per cent in 2024, and by more in 2025, suggesting upwards of 5,000 units cumulatively, with the obvious potential to expand the collaboration beyond 2025 as evTS products gain market penetration,” Healey said.

In Healey’s view, the initial revenue for the first 1,000 units would come in around $3 million and be captured in 2023, with the potential to drive over C$15 million in sales cumulatively over the life of the deal, and any additional revenue going toward backfilling future revenue targets. 

“We’re pleased to expand our partnership with evTS, providing access to the complete Exro ecosystem, including improved powertrain performance and the opportunity to repurpose their batteries for energy storage. This is a great example of how we can solve multiple challenges for customers on the path to electrification,” said Sue Ozdemir, CEO of Exro Technologies in the company’s May 11 press release. “I recently drove the FireFly ESV – powered by Exro’s Coil Drive System – and was thoroughly impressed not only with the difference our Coil Driver technology made, but also with the clear potential of evTS’ purpose-built vehicles in a wide variety of different commercial applications.”

Healey thinks Exro’s production levels could just be starting to ramp up, as the company’s Calgary manufacturing facility is currently under construction and will have the ability to produce approximately 100,000 coil driver units annually once complete, which should provide significant capacity for additional contract wins.

Despite the contract win for Exro, Healey does not forecast any changes to his overall financial projections in the near-term, as he continues to estimate $1.5 million in revenue for 2022. However, with the aforementioned backlog projections in place, Healey estimates a jump to a projected $40 million in revenue for 2023, with the evTS deal pairing with the $17 million revenue expectation from the Vicinity deal.

From a valuation perspective, Healey forecasts the company’s EV/Revenue multiple to plummet from the introductory 117.6x projection in 2022 to a forecasted 5.1x in 2023.

In terms of margins, Healey forecasts gross profit of $0.2 million in 2022 for a margin estimate of 16 per cent, which he projects to grow to 19 per cent in 2023 with gross profit of $7.7 million. Meanwhile, with continued investment, Healey continues to forecast losses in the company’s adjusted EBITDA, with estimated losses of $22.5 million and $16.7 million in place for 2022 and 2023, respectively.

Overall, Healey forecasts continued success for Exro based on its current trajectory.

“We expect Exro to accelerate along the commercialization path in coming months with the announcement of additional supply agreements with increasing frequency as it further transitions from development-only to commercialization of its technologies and completes construction of its manufacturing facilities,” Healey said.

Exro Technologies has seen its stock fall by 55.4 per cent since the start of 2022, gradually dropping off after starting the year trading at $3.07/share, dropping as low as $1.19/share on February 24.