Tantalus Systems is a Buy, says Paradigm

After preliminary fourth quarter numbers from smart power grid company Tantalus Systems (Tantalus Systems Stock Quote, Charts, News, Analysts, Financials TSX:GRID), Paradigm Capital analyst Daniel Rosenberg is staying bullish on the stock. Rosenberg delivered a note to clients on Thursday, saying GRID shares are looking attractive at current levels.

Burnaby, BC-based Tantalus, which develops mission-critical smart grid solutions for public power and electric utilities, announced on Thursday preliminary fourth quarter revenue of $12.0-$12.2 million and adjusted EBITDA at $75,000-$150,000. The topline would represent a 60 per cent improvement over the Q4 2021, while total revenue for 2022 at $39.5-$39.7 million would represent a 23 per cent year-over-year growth rate. (All figures in US dollars except where noted otherwise.)

“As we turn our sights towards 2023, we continue to witness improving visibility into our financial position, strong demand for our new TRUSense Gateway product offering and favourable tailwinds across the utility industry,” said Pete Londa, President & CEO, in a press release.

Rosenberg said the consensus Q4 revenue call had been $11.0 million, while his was $11.2 million, commenting that Tantalus’ fourth quarter saw a boost from backlog throughput following on the easing of supply chain disruptions, along with Tantalus’ M&A from earlier in 2022. On EBITDA, the Street had forecasted a loss of $100,000, while Rosenberg was at breakeven.

Rosenberg related that with $5.9 million in cash as of the end of the 2022 year, the company expects to have sufficient funds to support ongoing operations and R&D. 

“We view the news as a slight positive, as it suggests that Tantalus will continue to improve its margin profile despite an inflationary environment,” Rosenberg wrote.

Since debuting on the TSX in early 2021, Tantalus’ share price has dropped over two-thirds of its value, although shares are up in recent weeks. 

With the update, Rosenberg maintained a “Buy” rating on GRID and C$3.25 target price, which at press time represented a projected one-year return of 210 per cent. The analyst has based his target on a 2.8x multiple of his 2023 EV/Revenue estimate, with the stock currently trading at 1.0x 2023 EV/Revenue compared to its peer group at 3.7x, according to Rosenberg.

“Following a broader stock market sell-off in 2022, we believe shares screen attractively. Shares have retraced 43 per cent over a 12-month period compared to our peer group average of eight per cent. We believe shares could re-rate higher later this year as the company turns cash flow positive (we expect this to be a mid-year event),” he said.