Polaris Infrastructure Inc. (TSX: PIF), is a Canada-based company, which is engaged in the acquisition, development, and operation of renewable energy projects. It operates energy projects in Central and South America, which includes both Geothermal and Hydroelectric energy projects.

Key highlights

• Encouraging macros to support future performances: Apart from North America, the corporation has a presence in Latin America, including Nicaragua and Peru, which is aggressively expanding energy demands, even the government has declared mandates and economic policies to assist the expansion of local renewable energy sources. Latin America is one of the most active renewable energy markets in the world, with enormous development potential.

• Elevated hydroelectric energy production: Regardless of a sluggish production outlook in the recent past, the company reported total power production of 99,957 MWh in H1FY21, climbed from 82,927 MWh a year ago. We expect the momentum to continue in the coming days, supported by an elevated demand scenario.           

• Reported higher cash balance and minimizing net debts: In Q2 2021, the company reported higher cash balance at USD 104.6 million compared to USD 60.0 million on Dec 31, 2020. Furthermore, it reduced its net long-term debt to USD 156.2 million compared from USD 168.2 million, respectively in the same period.

• Increase in dividend distribution: Despite the ongoing economic sluggishness, the company reported consistent dividend distribution backed by stable cash flows, which is a key positive. In H1FY21, the group paid a total dividend of USD 5.306 million, higher than USD 4.756 million in pcp. Notably, the stock carries a dividend yield of ~3.985%, which is encouraging considering the current interest rate scenario.
  

 Financial overview of Q2 2021 (expressed in thousands of USD)

Source: Company

• PIF announced its quarterly results, wherein the group reported its revenue of USD 14.1 million, lower than USD 18.9 million in the previous corresponding period (pcp). The slide was primarily due to a lower demand scenario which caused a decline in production of 150,676 MWh v/s 165,541 MWh in pcp.
• Operating income stood at USD 3.4 million, slide from USD 8.2 million in pcp due to lower revenue and an increase in direct cost from the Nicaragua facility.
• Earnings before income tax stood higher at USD 0.9 million compared to USD 0.5 million in pcp.
• The group reported a net profit of USD 0.1 million, as compared to a net loss of USD 1.0 million in pcp.

Risks associated with investment

Due to the inherent nature of the operations, the group might witness setbacks from the global economic trends, risks related to local social, political, environmental, and economic conditions, as well as currency and inflation-related risks within the markets within which it operates. 

Valuation Methodology (Illustrative): EV to EBITDA 

Stock recommendation

The company operates in the utilities sector, where demand for services is unaffected by economic cycles, ensuring income stability. The business continues to build on its longer-term plan in the second quarter of 2021, achieving operationally and producing strong cash flow. Furthermore, the binary unit contract has been signed, with a commercial operating date of the end of 2022, which is significant. Additionally, it also has a strong balance sheet and has significantly decreased its net long-term debts. Hence, considering the aforesaid facts, we give a ‘Speculative Buy’ rating on the stock at the closing price of CAD 18.89 on November 02, 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 November 02, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Greenlane Renewables Inc.

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 or for direct use as vehicle fuel. 

Key Highlights:

• Impressive liquidity profile: At the end of Q2FY21, the company showcased a prudent working capital management, which indicates ample short-term liquidity, which is a key positive. Quick ratio and current ratio stood at 3.25x and 3.35x, respectively, higher than the industry median of 0.82x and 0.97x, respectively. Moreover, the company’s cash cycle days stood at 114.1 days, which is better than the negative industry median of 5.3 days.
  

• New Order win: Recently, the company announced its collaboration with Green Impact Partners, wherein the former would provide upgradation of the existing system supply agreement for a renewable natural gas (RNG) in the State of Colorado. The above project includes two dairy farms and is valued at CAD 6.1 million. The industry is witnessing increasing demand within the RNG segment, while we believe the company is highly poised to utilize the upcoming demand coming from the segment.
  

• Resilient business model: The offers a range of biogas upgrading systems that produce clean, low-carbon and carbon-negative RNG from biogas generated by organic waste sources. The company 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 prospects of the above segment is huge, which is expected to support the company’s upcoming operations.

Q2FY21 Financial Highlights:

• GRN announces its quarterly result, wherein the company posted its revenue of CAD 12.583 million, significantly higher than CAD 4.241 million in the previous corresponding period (pcp). The increase was driven by strong growth from system sales (CAD 11.847 million v/s CAD 3.711 million in pcp) due to new contracts.
• Gross profit stood at CAD 2.915 million, as compared to CAD 0.779 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 and benefits costs, and a higher research & development expense. Operating loss lowered to CAD 0.653 million, from CAD 0.925 million in pcp.

• The company reported its net loss of CAD 1.077 million, as compared to CAD 0.940 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

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.

Stock Recommendation:

The company has a healthy balance-sheet and reported debt to equity ratio of 0.01x in Q2FY21, significantly lower than the industry median of 0.69x. Additionally, long term debt to total capital stood at 0.6% in Q2FY21, as compared to the industry median of 29.3%. Hence, the above indicated higher financial flexibility of the firm when compared to the industry median. The stock of GRN is quoting at a lower valuation of EV to Sales multiples of 3.2x on NTM basis, as compared to the industry median of 3.9x. Hence, considering the above-mentioned facts, we give a “Speculative Buy” rating on the stock of GRN at the last traded price of CAD 1.61 on November 02, 2021. 

Technical Analysis Summary:

One-Year Technical Price Chart (as on November 02, 2021). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.