Greenlane Renewables Inc. (TSX: GRN) is a provider of biogas upgrading systems. Its systems produce clean, renewable natural gas from organic waste sources, including landfills, wastewater treatment plants, dairy farms, and food waste, suitable for either injection into the natural gas grid for direct use as vehicle fuel. 

Key Updates:

• Resilient business model: The group offers a range of biogas upgrading systems that produce clean, low-carbon and carbon-negative RNG from biogas generated by organic waste sources. GRN operates within the renewable segment, and in the recent past, we have seen a growing traction within the segment due to environment friendly approach taken by the major industry players. We believe the sector offers ample opportunity while the company is highly poised to take advantage of it.
  

• Adjusted EBITDA turned positive: For both Q3FY21, and 9MFY21, the company reported its adjusted EBITDA of CAD 0.083 million and CAD 0.807 million, respectively, as compared to an adjusted EBITDA loss of CAD 0.360 million and CAD 1.861 million, respectively in pcp. The above is impressive as it indicates improved operational efficiency.

• RSI hovering at an oversold zone: On a daily chart, the 14-days RSI of the GRN stock stood at 33.5241, indicating an oversold position with a possibility of price up move from the current level. Moreover, the stock closed near the lower range of the 20-days Bollinger band, which also illustrates a possible price appreciation in the coming trading sessions.

Technical Price Chart (as on December 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

• New Contract wins: During the third quarter of FY21, the company signed three new contracts with a cumulative worth of CAD 12.8 million, which includes:

1. New membrane separation biogas upgrading system for a project in USA from an international energy company.
2. Supply of two PSA biogas upgrading systems, one each for separate RNG dairy farm projects in the States of Wisconsin and New York, from a leading waste-to-energy industry player in the United States.
3. Biogas upgrading system supply agreement with Green Impact Partners worth CAD 6.1 million, with completion date of in the second half of FY22.

Q3FY21 Financial Highlights:

• GRN announces its quarterly result, wherein the company posted its revenue of CAD 13.439 million, significantly higher than CAD 6.504 million in the previous corresponding period (pcp). The increase was driven by strong growth from system sales (CAD 12.666 million v/s CAD 5.812 million in pcp) was primarily driven by addition new contracts.
• Gross profit stood higher at CAD 3.060 million, as compared to CAD 1.375 million in pcp, supported by higher sales, partially offset by higher cost of goods sold.
• The quarter was marked by higher general and administration costs, increase in salaries & benefits costs, and a higher research & development expense. Operating loss lowered to CAD 0.608 million, as compared to CAD 0.734 million in pcp.
• The company reported a net income of CAD 0.052 million, as compared to CAD 0.743 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports)

Risks: The segment in which the company caters is fairly new, and hence, the company might face price competition due to entry of new players within the segment.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

During Q3FY21, the company successfully bagged several orders, which is a key positive and reported strong top-line growth. Notably, as per the estimates total cumulative value of biogas upgrading equipment is likely to remain elevated in the coming years and the long-term outlook remains bright, leaving ample room for the company for expanding its operations. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like North American Construction Group Ltd, Doman Building Materials Group Ltd etc. Hence, considering the above-mentioned facts, we give a “Speculative Buy” rating on the stock of GRN at the last traded price of CAD 1.26 on December 06, 2021.

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

Technical Analysis Summary:

One-Year Technical Price Chart (as on December 06, 2021). Analysis by Kalkine Group

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

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