Questor Technology Inc.

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 

• Enhancing regulations creates demand for the Company’s services:  The US Environmental Protection Agency (EPA) has issued new regulations targeted at decreasing harmful air pollution generated by crude oil and natural gas industry activities, with a focus on the effective destruction of volatile organic compounds (VOCs) and hazardous air pollutants (HAPs). As a result, California has mandated that open flaring be outlawed by 2021, and other US states are working to strengthen waste gas emission regulations. Mexico has set a target of cutting methane emissions by 75% by 2025. We believe that all of these constraints provide the Company a chance to decrease venting through its clean combustion technology.

• Fulfilling client’s requirements from small scale to large scale:The Company's highly skilled technical staff collaborates with the customer to attain a combustion efficiency of 99.99 percent. The incinerators range in size from 20 mcf/d to 5,000 mcf/d and can handle small to big volumes of gas. Its incinerators are now employed in a wide range of energy infrastructure applications, including drilling, completions, production, midstream, downstream, transportation, and distribution which provides ample diversity.

• Strong financial position: The company continues to have a good financial position, with CAD 15.7 million in cash on hand, thanks to cost control and capital discipline. Notably, the company is in net cash position at the end of the quarter. As the economy improves, we believe this robust balance sheet would provide as a platform for expanding into new goods and markets.

  Financial overview of Q1 2021 (Stated in Canadian dollars)

Source: Company

• In Q1 2021, the company posted lower revenue, which fell by 66% to CAD 1.5 million against CAD 4.4 million in Q1 2020. Revenue decreased primarily due to lower performance from all the segments due to lower activities in oil & gas industry.

• The company reported a gross profit of CAD 0.03 million in Q1 2021 compared to a gross profit of CAD 1.9 million in the previous corresponding period.
• The company witnessed loss before tax at CAD 1.1 million against a profit of CAD 1.6 million mainly due to net foreign exchange losses and higher amortization along higher other expenses.

• Primarily due to lower revenue and above stated reasons, the company posted a net loss of CAD 0.8 million in the reported quarter against a profit of 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

COVID-19 and the macroeconomic climate continue to have a major influence on the oil and gas sector, causing output to be limited. This has had a detrimental impact on the Company's operations and financial performance. Many governmental health restrictions on economies throughout the world began to loosen in Q1 2021. In the United States, this has been especially true. Furthermore, the Company expects that a focus on ESG issues, along with a better economic outlook and higher oil and natural gas commodity prices, would result in improved performance in the second half of 2021 and beyond. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 1.78 on July 15, 2021. We have considered Computer Modelling Group Ltd, 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.

One-Year Technical Price Chart (as on July 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

Kelso Technologies Inc

Kelso Technologies Inc. (TSX: KLS), is a railway equipment supplier that produces and sells tank car service equipment used for the safe loading, unloading and containment of hazardous materials during transport. 

Key Highlights

• Product diversification:The company is a multi-faceted product engineering firm that specializes in the creation, manufacture, and marketing of unique transportation equipment. While its roots are in rail tank car equipment, new growth areas are a good fit for its commercial skills, and they are progressively expanding the pie.

Source: Company

• Business prospects looks promising in the future: Despite the current uncertainties, the Company's commercial prospects for the next three years are bright. It has specialist solutions to satisfy the new regulatory standards for a fleet of over 30,000 ethanol tank trucks that must comply by early 2023. In addition, the company has developed new items that can service an estimated 85,000 pressure tank vehicles fleet.

• Development plans for “KXI”:The Company’s KXI Suspension System is going through a detailed engineering design analysis to move from innovative concept to a viable commercial vehicle for a variety of markets. The Company has secured the services of several OEM suspension experts that would support the Company’s R&D schedules to produce prototypes in late 2021 with the goal of pilot production and sales in 2022. Moreover, this Heavy-Duty platform represents a much larger and more accessible commercial market opportunity to pursue.

• Strong working capital: The Company’s working capital remained at a healthy level of USD 10.18 million on March 31, 2021, compared to USD 6.25 million as on December 31, 2020. The improvement in the working capital position came about on March 4, 2021, when the Company completed a private equity placement whereby 7.0 million units were issued at a price of CAD 0.91 per unit. Moreover, there is no long-term interest-bearing debt, and the Company can currently operate without the need for new equity capital or credit facilities. This implies negligible balance sheet risk.

Financial overview of Q1 2021 (Expressed in US Dollars)

Source: Company

• In Q1 2021, the company reported revenue of USD 1.2 million, compared to USD 5.60 million in the previous corresponding period. The decline in revenue was impacted by the unfavorable circumstances surrounding the COVID-19 pandemic.
• Gross profit stood at USD 0.45 million (36.9% of revenues) in Q1 2021 compared to USD 2.6 million (46.1% of revenues) in the previous corresponding period.
• On the back of lower revenues, coupled with higher office & administration cost, consulting and filling fees and accounting & legal expenses dragged the company to post a net loss of USD 0.8 million against a profit of USD 1.2 million in the previous corresponding period.
  

Risks associated with investment

The company is prone to many risks associated with its business's nature, which could hamper its performance. Some of these risks include a fall in demand from automobile manufacturers, disruptions from the supply chain, technological change, increased prices of raw materials and commodities, etc.

Stock recommendation

The unfavorable trends from the decrease in rail tank car activity in 2020 persisted into the first quarter of 2021. The Company's poor financial performance for the three months ending March 31, 2021, can be attributed to this. However, the business volumes are returning to pre-pandemic levels gradually. The tank car industry is experiencing a phase of modest fleet growth, which is being accompanied by increased rail tank car usage. The need for new tank vehicles is anticipated to rise to 14,800 in 2022 and 19,100 in 2023. On the valuation front, the stock is available at forward EV/Sales multiple at 0.82x against the industry (Industrial) median of 1.8x. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.77 on July 15, 2021 with a lower double digit (in percentage term) upside potential.

One-Year Technical Price Chart (as on July 15, 2021). Source: REFINITIV, 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.