With positive industry tailwinds and a compelling valuation, Tantalus Systems (Tantalus Systems Stock Quote, Charts, News, Analysts, Financials TSX:GRID) is a stock with lots of upside from current levels. That’s the skinny from Beacon Securities analyst Gabriel Leung who updated clients on the company in a Monday report where he reiterated his “Buy” recommendation on GRID. Tantalus, which develops mission-critical smart grid solutions for public power and electric cooperative utilities, delivered fourth quarter 2021 numbers last week, showing revenue of $7.6 million compared to $9.3 million a year earlier. For the year, GRID hit $32.2 million in revenue compared to $33.0 million for 2020. Adjusted EBITDA for the quarter was negative $1.3 million versus positive $817,363 a year earlier, while for the year EBITDA was a loss of $1.7 million versus a gain of $2.6 million over 2020. (All figures in US dollars except where noted otherwise.) Tantalus President and CEO Peter Londa highlighted the company’s 27.5 per cent year-over-year growth in orders from its sales pipeline and the expansion of Tantalus’ user community by adding 25 new customers to bring the total to over 210 utilities. Londa said factors such as increasingly common extreme weather events, the adoption of electric vehicles and uptick in home solar energy installations all make for challenges to energy distribution players, with Tantalus’ solutions serving to support utilities in adapting to the new realities. “These challenges create urgency among utilities to digitize their grids. By doing so, utilities gain situational awareness and the necessary command and control of critical assets,” said Londa in a March 23 press release. “Our strong balance sheet enabled us to execute the recently announced acquisition of Congruitive which places Tantalus at the forefront of helping utilities prepare for the significant impact that electric vehicles and distributed energy resources will have on their resiliency and reliability.” Looking at the Q4 numbers, Leung said they were in-line with the earlier, preliminary announcement made by Tantalus, “The company surpassed 2.8 million endpoints . Within its existing user community, Tantalus has over 1.6 million available endpoints to deploy in the future that will drive revenue,” Leung wrote. “Q4 revenues were down 18 per cent year-over-year largely due to supply chain constraints and shipping delays of contracted revenue. As previously noted, these issues pushed ~$1.2 million of revenues in CY22.” Leung noted that gross margins were 44 per cent compared to 52 per cent a year earlier due to inflationary pricing pressure across the supply chain along with the revenue mix of products shipped, with the company’s Connected Devices gross margins particularly notable at 30 per cent versus 42 per cent last year while Utility Software Applications and Services gross margins were 69 per cent versus 75 per cent last year. On revenue, Connected Devices hit $4.8 million, down 26 per cent, and Software and Services was up one per cent year-over-year to $2.8 million. “Tantalus continues to prioritize the development and delivery of software and services as additional connected devices are installed in the field. The recent acquisition of Congruitive is also expected to help accelerate this effort,” said Leung. Tantalus announced on February 1 the acquisition of Congruitive, which offers a software platform called Congruence.IQ for substation automation, for US$8 million. Tantalus said adding Congruence.IQ will give it more tools to help utilities modernize their grids. “Tantalus’ smart-grid platform, TUNet, helps utilities address these challenges by enabling them to monitor, control and respond to events anywhere and at any time across their distribution networks,” said Tantalus in a press release. “With the addition of Congruitive and C.IQ, Tantalus will be able to help utilities leverage data through a growing suite of software capabilities to improve the services delivered to their communities.” Looking ahead, management kept its 2022 revenue guidance as is in the Q4 release, calling for topline growth of between 20 and 25 per cent. For his part, Leung is expecting 2022 revenue and EBITDA of $38.8 million and negative $2.1 million, respectively, and 2023 revenue and EBITDA of $47.0 million and $0.7 million, respectively. On valuation, the analyst is estimating Tantalus’ EV/Revenue to go from 1.6x in 2021 to 1.4x in 2022 to 1.1x in 2023. Leung sees GRID’s EV/Adj. EBITDA emerging in 2023 at 71.2x. Along with his “Buy” rating, Leung has reaffirmed his C$4.00 target price, which at press time represented a projected one-year return of 167 per cent. “CY21 was clearly a difficult year and while some issues related to COVID could subside (i.e. lockdowns), some could persist (i.e. higher costs). That said, we remain bullish on Tantalus given the numerous challenges that utilities continue to face that will require them to upgrade distribution grids creating a strong tailwind for the company,” Leung wrote.