PyroGenesis Canada Inc.

PyroGenesis Canada Inc. (TSX: PYR) is engaged in the design, development, manufacture, and commercialization of advanced plasma processes and systems.

Key Updates:

• Healthy D/E ratio: At the end of Q3FY21, PYR reported a Debt-to-equity ratio of 0.10x, as compared to the industry median of 0.86x. The above indicates better capital management and higher financial flexibility, which is a key positive. Additionally, the company’s reported its long-term debt to total capital at 3.9% in Q3FY21, significantly better than the industry median of 34.5%, which indicates low balance sheet risk.

• Improved working capital management: The company reported ample liquidity and improved working capital management and reported its quick ratio and a current ratio of 2.20x and 2.23x, respectively, in Q3FY21, as compared to the industry median of 1.07x, and 1.40x, respectively. The above indicates that the company is well managing its short-term liabilities with its current assets.

• Launch of ZCE Hydrogen Production Process: Recently, the company introduced ZCE hydrogen for heating in industrial processes, which is used for clean, renewable electricity. The above is the only commercially available process to produce clean hydrogen is water electrolysis. As per the management, the above process is more energy-efficient, cost-effective and scalable than other forms of hydrogen production and is likely to improve the company’s cost structure in the coming days.

Q3FY21 Financial Highlights:

• PYR announced its quarterly result, wherein the company posted revenue of CAD 9.317 million, as compared to CAD 8.149 million in pcp.
• Gross profit stood lower at CAD 4.052 million, as compared to CAD 5.532 million in pcp, due to a higher cost of sales and services (CAD 5.265 million v/s CAD 2.616 million in pcp).
• The quarter was marked by higher selling, general & administrative costs and higher research & development expense. Net loss from operations was recorded at CAD 1.238 million, as compared to a profit of CAD 88.769 million in pcp.
• The company reported a net income of CAD 0.623 million, as compared to a net profit of CAD 15.325 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company is battling with higher input costs and reported higher R&D expenses coupled with an increase in cost of good sold. Continuation of the above trend is likely to dampen the company’s upcoming performances.

Stock Recommendations:

The stock of PYR corrected ~33% and ~45%, respectively, in the last one month and three months, respectively, and currently trading near the lower band of its 20-days Bollinger band, which indicates a possible uptick in the stock price in the coming trading sessions. Moreover, the 14-days RSI is at an oversold zone of 26.71, which further hints of a price appreciation. The stock of PYR is available at a lower valuation of EV to Sales of 16.6x on a TTM basis, as compared to the industry (Industrials) mean of 70x. Hence, considering the aforesaid facts, we give a ‘Spec Buy’ rating on the stock at the last traded price of CAD 3.03 on December 20, 2021. 

Technical Analysis Summary

One-Year Technical Price Chart (as on December 20, 2021). Analysis by Kalkine Group

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

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