Spark Power Group Inc

Spark Power Group Inc (TSX: SPG) is independent provider of end-to-end electrical contracting, operations and maintenance services, and energy sustainability solutions to the industrial, commercial, utility, and renewable asset markets across North America. 

Key highlights

• Experiencing positive signs of revival: During FY2020, the company's facilities stayed entirely operating, since the service and goods are considered staples and are not affected by economic cycles. Furthermore, the company received money from both the Canadian and US governments in the form of subsidies, which enabled the company to stay afloat during difficult times. In particular, the company is experiencing positive traction in new bookings in FY2021, helped by improving business conditions. Revenues, new bookings, and consumer engagement are expected to remain strong in FY2021, and the management expects margins to increase due to lower costs associated with COVID-19 protocols.
  

• Solid growth from renewables segment: The firm saw a significant increase in revenue from the renewable business in FY2020, and the momentum also continued in Q1 2021, which accounted for over 30% of total revenue in Q1 2021, thanks to the latest acquisitions of 3-Phase and One Wind and strong demand for its U.S. wind services. Furthermore, the company's green division caters to fast-growing markets such as Battery Energy Storage Systems (BESS) and Electric Vehicles (EVs), which is a significant plus. We anticipate that the above momentum would continue in the coming days, bolstering the cash flows of the company.

• Utilizing customer database for organic growth: Recently the company announced that current and established consumers in California would be able to take advantage of solar technologies. To meet the rising demands of the solar market, the organization is focused on leveraging its local footprint and customer partnerships, as well as its technological and sustainability capabilities.

  Financial overview of Q1 2021 (in thousands of Canadian dollars)

Source: Company

• In Q1 2021, the company’s revenue increased 4.7% to CAD 56.0 million, against CAD 53.5 million in the previous corresponding period. The group reported higher revenues from Renewables segments, which accounted for over 30% of total revenue in the first quarter.
• Gross profit stood higher at CAD 14.1 million compared to CAD 13.3 million in pcp, supported by a higher income.
• Income from operations improved and stood at CAD 1.4 million, against a loss of CAD 0.05 million in Q1 2020, primarily attributable to decrease in selling, general and administrative costs at CAD 12.5 million V/s CAD 13.3 million and positive change in fair value of derivative instruments.
• The company minimized its comprehensive losses to CAD 0.07 million compared to a loss of CAD 2.3 million in pcp.

Risk associated with investment

The company reported a surge in its total debt due to working capital requirements, capital expenditures and debt service requirements. Continuation of the above trend would lead to higher finance costs, which would further dampen the company’s profitability. 

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

Despite the challenges posed by the COVID-19 pandemic, the company achieved sales growth of more than 26.8% in its renewables market segment in Q1 2021. Thanks to the increasing introduction of green energy, the renewables segment is expected to continue to expand in the coming days. Furthermore, the company's new approach of leveraging its current market footprint and customer partnerships in California is expected to help the company expand organically. Based on technical analysis, the stock has support at CAD 1.70 level. Hence, considering the aforesaid facts and valuation, we recommend a ‘Speculative Buy’ Rating on the stock at the closing price of CAD 2.06 on June 21, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Price Chat (as on June 21, 2021), Analysis by Kalkine Group

NanoXplore Inc. 

NanoXplore Inc (TSXV: GRA) is a manufacturer, and supplier of high-volume graphene powder for use in industrial markets. The company provides graphene-enhanced plastic and composite products to various customers in transportation, packaging, electronics, and other industrial sectors. Geographically, it generates most of the revenue from the United States.

Key highlights 

• Secured multiyear supply agreement: Recently, on June 16, 2021, the company announced that it entered into a multiyear agreement to supply GrapheneBlack grade products to Techmer PM, LLC, one of the largest plastic compounders in North America. Techmer PM would market its graphene-enhanced plastic compounds to various industries in several diverse ends uses and applications. We believe this multi-year supply agreement would bring fresh cash flows to the company.
  

• Venturing into electric vehicle battery production: The Company recently formed a 50:50 joint venture with Martinrea International Inc called VoltaXplore to develop and build graphene-enhanced electric car batteries. We believe the company has unique technology that can provide a solution for producing electric car batteries that would assist governments and automakers in meeting ambitious objectives for electric vehicle production. Furthermore, graphene-enhanced batteries would considerably improve existing battery performance.

• Boosted liquidity and minimized Long-term debt: The Company recently concluded fundraising of 11.5 million common shares at CAD 4.00 per share for a total of CAD 46.0 million in gross proceeds. The transaction's proceeds would be utilized to fund battery initiatives, debt repayment, and graphene sales and marketing. To enhance its financial position, the company made advance payments of about CAD 1.37 million on its long-term debt in March 2021. Furthermore, its long-term debt decreased to CAD 9.2 million in the reporting period from CAD 12.8 million in the similar prior period.
  

 Financial overview of Q3 2021 (Expressed in Canadian dollars)

Source: Company 

• In Q3 2021, the company posted higher revenue at CAD 18.4 million compared to CAD 14.8 million in the previous corresponding period. The increase in revenue was mainly due to the addition of revenues coming from CSP, acquired on September 11, 2020.
• On the back of higher cost of sales and other higher operating expenses, the consolidated operating expenses increased to CAD 22.0 million against CAD 17.5 million in pcp, as a result the company witnessed increased operating loss of CAD 3.6 million, against CAD 2.7 million in pcp.
• The company reported loss for the period at CAD 3.8 million compared to CAD 2.99 million in the previous corresponding period, partially supported by income tax recovery.
  

Risks associated with investment

A component of the Company's operation is cyclical, particularly when it comes to its transportation activities. It is influenced by a variety of factors, including the general state of the economy in North America and abroad. Furthermore, a reduction in truck production, whether by the customer or by platform, could have a material adverse impact on the Company's financial situation, results of operations, and ability to satisfy current financial covenants. 

Stock recommendation

The global pandemic of COVID-19 has and continues to have a major detrimental impact on the commercial activities of the Company's customers. The Company's financial results have traditionally been harmed by the slowing of production operations and the dissipation of client demand. However, we feel the winds are shifting, and manufacturing activities are beginning to pick up. VoltaXplore, a joint venture with Martinrea International Inc to research and manufacture graphene-enhanced electric car batteries, was recently launched. We expect the market to generate additional cash flow opportunities as the demand for electric vehicles rises. Furthermore, the group has negotiated a multi-year supply deal with Techmer PM, LLC, which we anticipate would provide the firm with new cash flows. Furthermore, in order to maintain a healthy balance sheet, it reduced long-term debts to CAD 9.2 million from CAD 12.8 million in the previous equivalent quarter, which is a significant improvement. Based on technical analysis, the stock has support at CAD 2.85 level. On the valuation front, the stock is available at forward EV/Sales multiple at 4.3x against the industry mean of 12.7x. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 3.46 on June 21, 2021 with a lower double digit upside potential.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

One-Year Technical Price Chart (as on June 21, 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.