Questor Technology Inc. (TSXV: QST) is focused on clean air technologies that safely and cost effectively improve air quality, support energy efficiency and greenhouse gas emission reductions.

Key Updates:

• Weak Margins: The company is struggling with higher input costs, which resulted to weak profitability margins, and remains as a major concern. In Q3FY21, the company reported its gross margin of 2.3%, considerably lower than the industry median of 24.9%. Additionally, the company reported a negative EBITDA margin and negative operating margin of 18.7% and 44.8%, respectively, as compared to the industry median of 11.8% and 2.3%.

• Longer cash cycle days: In Q3FY21, the company reported a long cash conversion time of 217.1 days, as compared to the industry median of 84.6 days, which indicates that the group lags to convert its investments in inventory and other resources into cash flows. The above indicates weak operational efficiencies.

• Extended net losses: At the end of 9MFY21, the company reported a net loss after tax of CAD 2.21 million, as compared to a net loss of CAD 0.943 million in pcp. The above is due to a lower income (CAD 4.376 million in 9MFY21 v/s CAD 6.587 million in pcp) coupled with lower foreign exchange gains (CAD 43.859 million in 9MFY21 v/s CAD 462.586 million in pcp), and higher other expenses (CAD 193.996 million in 9MFY21 v/s CAD 175.358 million in pcp).

  Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

Within the North American market, the company witnessed a slide in order book due to the preservation of capital by most of the oil producers. Hence, any weakness in the oil market would lead to a decline in the company’s performance. We have valued the stock using the Price to earnings-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered industry (industrials) mean on an NTM basis. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the last traded price of CAD 1.89 on November 18, 2021.

One-Year Technical Price Chart (as on November 18, 2021). Analysis by Kalkine Group

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

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