Questor Technology Inc. (TSXV: QST) is an environmental cleantech company which is active in Canada, the United States, Europe and Asia. It is focused on clean air technologies that improves air quality, supports energy efficiency and greenhouse gas emission reductions.

Key Highlights 

• Secured significant purchase orders: The company recently announced that it has obtained two substantial purchase orders totaling CAD 3.9 million for the delivery of two new incinerators to be delivered to two clients in the Montney area of Canada during the first half of 2022.
  

• Scenarios turning on positivity: Oil and gas prices have begun to rise, and the Company anticipates that this will lead to an increase in activity in the energy sector over the following year, which has traditionally provided the Company with income.

• Diversifying into new markets: The company is growing its waste heat to power offering and developing digital capabilities focused on an emissions platform as part of its diversification strategy. Recently, it started a Questor clean combustion unit at a biomass plant in Kelowna, British Columbia, that generates renewable natural gas. We believe that through this diversification the company would reduce its reliance on oil and gas clients.

• Strong financial position: The company continues to have a good financial position, with CAD15.4 million in cash on hand, thanks to cost control and capital discipline. As the economy improves, we believe this robust balance sheet will provide a platform for expanding into new goods and markets.
  

Financial overview of Q2 2021 (Stated in Canadian dollars)

Source: Company

• In Q2 2021, the company reported slight improved revenue at CAD 1.1 million, increased by 15% compared to CAD 1.0 million in the previous corresponding period. An increase was mainly due to higher equipment sales.
• The company reported higher cost of sales at CAD 1.3 million compared to CAD 1.0 million in the previous corresponding period.
• Due to higher cost of sales the company registered gross loss of CAD 0.12 million compared to a loss of CAD 0.03 million in pcp. The gross loss was largely a result of one-time expenses related to re-locating to a more operationally efficient yard location in Colorado.
• The company posted loss before tax of CAD 1.1 million in the reported period V/s a loss of CAD 1.6 million in pcp.
• Net loss minimized to CAD 0.8 million compared to CAD 1.2 million in pcp.

Risks associated with investments

Global slowdown in macroeconomic environment and a lower crude oil demand offtake are the key risks for the company as it can have significant decline in demand for their equipment and services.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation 

The company’s revenue in Q2 2021, increased 15% or CAD 0.2 million compared to the same period in 2020. The commodity prices have started to recover, and activity levels are also improving as economies reopen. This has resulted rising interest in the technology solutions, and certain jobs that were put on hold during the pandemic, are starting up again. Recently the company received purchase orders to supply two new incinerators totaling CAD 3.9 million. Furthermore, the company is diversifying its business into new markets, which would minimize the dependence on oil and gas customers and expand its markets with its waste heat to power offering.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 1.49 as on October 13, 2021. We have considered CES Energy Solutions Corp, Superior Drilling Products Inc, Pulse Seismic Inc, etc. as the peer group for the comparison.

*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 October 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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