Greenlane Renewables Inc. (TSX: GRN) is a provider of biogas upgrading systems producing clean, renewable natural gas from different water sources. The major source of revenue of the company comes from North America and Europe.

Key highlights

• Award of New Contracts & Acquisition: The Company on 4^th January 2022 has been awarded a contract valued CAD 7.1 million for supply of biogas upgrading system to a dairy farm RNG Project in USA and Brazil. It has also awarded a CAD 12.1 million contract by FortisBC Energy Inc. for a new project in Canada. Additionally, the company is anticipated to close the acquisition of Airdep S.R.L in January 2022. Airdep is a leading Italian provider of biogas desulfurization and Air deodorization Products.
  

• Greenlane Upgrading Technologies: It is the only company that offers three main biogas upgrading technologies namely- Water wash, Pressure swing absorption, and Membrane Separation. The company uses right technology for best outcome of any Renewable Natural Gas (RNG) project.
  

• Emerging Vertical for RNG: The company has got new emerging vertical called Green H2 for its Renewable Natural Gas (RNG) Ecosystem. Globally 76% of hydrogen is produced from fossil natural gas and the company is now using it for RNG Ecosystem to reduce carbon emission.
  

• Higher Cash Flow: The company has cash and cash equivalents of CAD 35.56 million in Q3 2021 vs CAD 16.44 million in Q3 2020, due to issue of new proceeds of shares and warrants. Hence the company is cash rich and ready for any future business opportunities.
  

Risks associated with investment           

Since the company competes in a competitive natural gas market. Hence, it must compete with government policies, supply disruptions, labour disruptions, fluctuations due to commodity prices, foreign exchange, and interest rate risks 

Financial Overview of for the Period Ended September 2021 (In thousands of CAD, except share and per share amounts)

Source: Company’s Filing 

• The revenue of the company has jumped by 106.61% to CAD 13.349 million in Q32021 from CAD 6.504 million in Q32020, due to securing new upgrader contracts with an aggregate value of CAD 18.9 million and has begun recognizing revenue from these contracts in the quarter.

• The Company’s cost of goods sold is CAD 10.1 million in Q32021 and CAD 4.8 million in Q32020 also gross margin was 25% in September 2021 and 26% on September 30, 2020, due to late delivery of complex projects. However, the combined gross margin was in line with the Company’s expectation of 25-30% on an annual basis.

• Company’s Net Income has down to CAD 0.052 million from CAD 0.743 million, due to higher operating costs.

 Valuation Methodology (Illustrative) EV to EBITDA Based

Analysis by Kalkine Group

Stock recommendation

The company uses Asset light business model for scalability and global reach. Further, the company is anticipated an increase in biogas upgrading market by increasing demand for RNG projects which will reduce greenhouse gas emissions. Additionally, the company is scaling up operations with some new upgrader project which is supported by government regulations. Therefore, based on the above rationale and valuation, we recommend a "Spec Buy" rating at the closing price of CAD 1.25 as on date 10^th January 2022.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Price Chart (as on January 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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