Despite soft results, Thermal Energy International still a buy, analyst says

Beacon Securities analyst Russell Stanley maintained his “Buy” rating and $0.25 target on Thermal Energy International (Thermal Energy International  Stock Quote, Chart, News, Analysts, Financials TSXV:TMG) despite a weaker-than-expected first quarter, saying project delays should be resolved during the remainder of fiscal 2027.

Stanley noted that the Ottawa-based energy efficiency company’s quarterly revenue declined 9% year-over-year and 12% sequentially to $6.2-million, while Adjusted EBITDA was negative $100,000.

“We view the results as a soft start to the year given our full year forecast,” Stanley said in his Oct. 27 report.

Management attributed the shortfall partly to delays in completing two heat recovery projects because customer sites were not ready for installation. The projects are expected to proceed once those issues are resolved.

Revenue recognition on two orders for GEM steam traps was also deferred until the second quarter because the products did not reach customer sites before quarter-end.

“During this morning’s conference call, management declined to quantify the impact of the delays on the top line,” Stanley said.

Despite the weaker quarter, Stanley pointed to improving profitability over the past 12 months. Trailing 12-month Adjusted EBITDA increased 77% on revenue growth of 17%, reflecting improved operating leverage. Thermal Energy also generated $1-million in operating cash flow during Q1, supported by customer deposits, and ended the quarter with $4.5-million in cash and minimal debt. Orders totalled $6.8-million during the quarter, down 43% year-over-year, although the company secured another $6-million in orders after quarter-end.

Stanley said there is also a recently announced $3.2-million contract with a new European agricultural and dairy co-operative, which is expected to generate approximately $1.2-million in annual customer savings, including the value of emissions reductions.

“During this morning’s conference call, management noted that the new client is a regional player, and while not as large as some of the company’s other global food and beverage customers, TMG still expects additional opportunities with them,” Stanley said.

Stanley made only modest changes to his forecasts, reducing his fiscal 2027 revenue estimate to $39-million from $39.1-million and his Adjusted EBITDA estimate to $3.2-million from $3.3-million. Stanley expects Adjusted EBITDA of $5.6-million on revenue of $45.6-million in fiscal 2028.

“Despite a soft Q1, our estimate revisions at this point are minor, as we assume that the delays in project completion/revenue recognition are unwound during the rest of F2027,” he said. “We continue to hold off on publishing quarterly forecasts for Thermal Energy, given limited visibility on a q/q basis. On this basis, we are maintaining our PT.”

Stanley said Thermal Energy trades at approximately 5.5 times estimated calendar 2027 Adjusted EBITDA, a 71% discount to Trane Technologies.

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