PyroGenesis Canada Inc (TSX: PYR) is a company that designs, develops, manufactures, and sells sophisticated plasma processes and systems. Defense, metallurgical, mining, additive manufacturing, oil & gas, and environmental industries benefit from the company's technical and production experience, cutting-edge contract research, and turnkey process equipment packages.

Key Highlights

• Launch of ZCE Hydrogen Production Process: ZCE hydrogen, which is utilized for clean, renewable electricity, was recently launched by the corporation for heating in industrial operations. 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.

• Rosy future for ZCE hydrogen: Today, many industrial processes are looking to replace fossil fuels and reactants such as coal, oil, and natural gas with ZCE hydrogen. In the iron and steel manufacturing industries alone, the consumption of ZCE is projected to increase from 0.5 million tons per year in 2020 to 12.5 million tons in 2030. The company expects to cater this huge demand.

• Enhanced 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, which was much higher 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.

• Healthy Debt-to-equity ratio: At the end of Q3FY21, PYR reported a Debt-to-equity ratio of 0.10x, as compared to the industry median of 0.90x. 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 34.1%, which indicates low balance sheet risk.
  

Risks associated with investment

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

Financial overview of Q3 2022

Source: Company Filing

• PYR announced its quarterly result, wherein the company posted revenue of CAD 9.3 million compared to CAD 8.1 million in pcp.
• Gross profit stood lower at CAD 4.0 million, as compared to CAD 5.5 million in pcp, due to a higher cost of sales and services (CAD 5.2 million v/s CAD 2.6 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 1.2 million, as compared to a profit of CAD 0.08 million in pcp.
• The company reported a net income of CAD 0.6 million, as compared to a net profit of CAD 15.3 million in pcp.

Stock recommendation

Recently, the company introduced ZCE hydrogen for heating in industrial processes, which is used for clean, renewable electricity by many industries as globally the industries are opting for clean energy. this process is more energy-efficient, cost-effective and is likely to improve the company’s cost structure in the coming days. Additionally, the consumption of ZCE is projected to increase from 0.5 million tons per year in 2020 to 12.5 million tons in 2030 alone in the iron and steel manufacturing industries, the company expects to cater this huge demand, which would fuel its cash flows. Furthermore, the company is managing its capital at the optimum level where it is beating industry median number in many fronts. On the valuations front the stock of PYR is available at a lower valuation of EV to Sales of 19.9x on a TTM basis, as compared to the industry (Industrials) mean of 74.2x. Hence, considering the aforesaid facts and bright aspects, we recommend a “Speculative Buy” rating on the stock at the last traded price of CAD 3.52 at 10:40 am Toronto time (as on January 13, 2022).

Technical Analysis Summary

One-Year Technical Price Chart (as on January 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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