Kelso Technologies Inc

Kelso Technologies Inc (TSX: KLS) designs and produces transportation components for rail, trucking and wilderness access. In addition to rail tank cars, the company currently supplies truck tanker equipment, rail wheel cleaning units, fuel loading systems, military components, rail emergency kits and high-performance suspension for fleet vehicles in rugged outback terrains.

Key Highlights

• No Long-term debt with long-term as debt-to-equity ratio stood at 0.6%, which is significantly lower compared to the industry average long-term debt to equity ratio of 25.9%. This implies negligible balance sheet risk.
• Strong liquidity position with current ratio at the end of Q3FY20 stood at 7.60 times, improved from 7.10 times in the Q2FY20. This is considerably higher than the industry median of 2.29 times.
• Shares of KLS registered a relative outperformance against the benchmark index, and outperformed the benchmark index by 21% in YTD, by 13% in past three months, by 33% in last one month and by 5% in the past five trading sessions, implies a strong relative strength.
• Since August 2020, the insiders are buying shares of the company, implies that they utilized the lower price as an opportunity to bag shares. This also implies that they are bullish on the company’s future performance.
• KLS shares are hovering in a bullish zone, as at the last traded price, its shares traded well above the crucial long-term as well as short-term support levels of 200-day, 50-day and 30-day SMAs. Further, the leading momentum indicator, the 14-day RSI hovering in a neutral zone. Also, the MACD is rising and hovering above 9-day SMA signal line, with the difference between 12-day and 26-day EMA is positive.

Technical Price Chart (as on January 21^st, 2021). Source: Refinitiv (Thomson Reuters).

• The financial results for the nine months ended September 30, 2020 have been negatively impacted by the uncertainties surrounding the COVID-19 pandemic that have significantly diminished commodity shipments and rail tank car usage in 2020.

Financial Highlights: Q3FY20

Source: Company Filing

• The results for the three months ended September 30, 2020 were dramatically impacted by the negative circumstances surrounding the COVID-19 pandemic.
• The net loss for the three months ended September 30, 2020 was USD 681,527 ($0.01 per share) compared to reported net income of USD 759,713 ($0.02 per share) for the three months ended September 30, 2019 against revenues for the three months ended September 30, 2020 of USD 1,586,206 compared to USD 5,596,031 for the three months ended September 30, 2019.
• Gross profit was USD 600,754 (38% of revenues) for the three months ended September 30, 2020 compared to USD 2,576,579 (46% of revenues) for the three months ended September 30, 2019.
• Net assets of the Company improved to USD 12,320,115 at September 30, 2020 compared to USD 11,845,275 at December 31, 2019.
• The Company has no interest-bearing long-term liabilities or debt at September 30, 2020

Risk Associated with Investment

There is a strong possibility of a further diminishment of the company’s financial performance during 2020 if the COVID-19 continue to spread further.

Stock Recommendation

Despite a challenging business condition, the company’s working capital remained at a healthy level of USD 7,943,665 on September 30, 2020. The company has no long-term interest-bearing debt to service, and they continue to operate without the need for new equity capital or credit facilities. However, returning to pre-pandemic business volumes is expected to happen very slowly. Though post-COVID-19 business prospects are encouraging, there is a strong possibility of a further diminishment of financial performance during 2020 if the COVID-19 continue to spread further. The management believes that a debt-free financial position, capital reserves, manageable costs and continuing product sales should allow Kelso to survive and maintain its positive stature with the objective of exiting the COVID-19 crisis in a healthy financial position.  Further, regardless of a significant impact of the COVID-19 on the company’s financials, its shares are hovering in the bullish zone, and also strongly outperforming the benchmark index in 3-Month, and 1-Month, implies that the worst has been already priced in.

Also, from the valuation standpoints, its shares are trading at a discounted valuation, with TTM PE ratio of the stock stood at 21.27x whereas industry median stood at 26.39x, implies a discounted valuation of ~20% against the industry median.

Therefore, given the discounted valuation and strong technical strength and risk associated with investment, we recommend a ‘Speculative Buy’ rating at the closing price of CAD 0.90 on January 21, 2021.

1-Year Price Chart (as on January 21, 2021). Source: Refinitiv (Thomson Reuters)

Questor Technology Inc

Questor Technology Inc. (TSX: QST) is headquartered in Calgary, Alberta, with operations across North America. The company provides specialized waste gas incineration products and services that destroy harmful pollutants in any waste gas stream at 99.99 percent efficiency enabling their clients to meet emission regulations, address community concerns and improve safety at industrial sites. The Company has three primary incinerator related revenue streams: sales, rentals and services.

Key Highlights

• At the close (21 January 2021), shares of QST traded well above the crucial long-term as well as short-term support levels of 200-day, 50-day and 30-day SMAs, which is typically considered a bullish price trend in a stock. While it shares reported two consecutive days of negative closes, but still its crucial support levels are quite far from the current trading level, and bullish trend is still intact.

Technical Price Chart (as on January 21^st, 2021). Source: Refinitiv (Thomson Reuters)

• The leading momentum indictor the MACD is hovering above the 9-day SMA signal line, despite three straight days of negative close, with the difference between short-length 12-day EMA and long-length 26-day EMA is positive, a bullish indicator. Also, 14-day and 9-day RSI is hovering in a neutral zone and mostly tilted towards the overbought zone.
• A volume spurt spotted on the daily price chart, with 5-day average traded volume is approximately 53% higher against the 30-day average volume traded. Also, its shares are up approximately 7.4% in the past five trading sessions.
• Further, the Company continues to be in a strong financial position at the end of Q3FY20, with Cash increased to CAD 17.0 million from CAD 13.5 million on December 31, 2019 and CAD 15.2 million at June 30, 2020.

Financial Highlights: Q3FY20

• Revenue for the three months ended September 30, 2020 is CAD 1.1 million versus CAD 8.3 million in 2019, a decrease of CAD 7.2 million. Revenue from incinerator rentals decreased from CAD 4.0 million in 2019 to CAD 0.6 million in 2020. Incinerator equipment sales decreased from CAD 3.6 million in 2019 to CAD 0.3 million in 2020 and Incinerator service revenue decreased from CAD 0.7 million in 2019 to CAD 0.2 million in 2020.
• Further, the company reported Gross loss of CAD 0.4 million in 2020 compared to a gross profit of CAD 4.5 million in 2019.
• The Company recorded a CAD 0.1 million foreign exchange loss for the three months ended September 30, 2020 versus a CAD 0.1 million gain in 2019.

Risks: 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.

Stock Recommendation: Despite the short-term challenges witnessed by the company due to COVID-19 led disturbance, we believe that the clean technology industry would remain an integral component of resource development over the medium to long term and the Company is well positioned, given its focus on top-tier service, quality and technology to meet their client’s emission commitments in the future. Also, the Company maintains a strong financial position accomplished through managing costs and maintaining capital discipline while providing best in class equipment and services to its customers. Therefore, based on the above rationale, technical bullish indicators and risk associated, we have given a “Speculative Buy” recommendation at the closing price of CAD 3.06 on January 21, 2021.

Source: Refinitiv (Thomson Reuters)

Disclaimer

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