By Richard Gill, CFA
EQTEC (EQT), the waste gasification to energy technology company, has announced results for the year to 31st December 2019. This was a period which saw the company refine its strategic focus, appoint a new CEO and go on to make significant progress in commercialising its technology, signing a number of deals with strategic partners across the US and Europe. The operational highlights of 2019 have already been summarised in our recent update note which you can read HERE, with the post period end highlights covered HERE.
On the financial side, revenues for 2019 were €1.68 million, down from €2.18 million in 2018. However, net losses were cut from €8.2 million to €3.56 million, largely due to lower non-cash impairment charges. Admirably, admin expenses were cut slightly, from €2.76 million to €2.68 million and further cost saving initiatives have been implemented since the period end.
Net debt fell from €5.5 million to €2.3 million over the year after a €3.16 million debt for equity swap and two equity fundraisings amounting to €2 million. Since the period end, the company has negotiated a re-profiling of existing loans plus interest of €2.7 million (as at 1st June), extending their maturity dates from 31st July 2020 to 30th June 2021. An additional £212,500 has also been received via the issue of warrants since the year end.
In terms of new operational information, the results revealed that contracted Q1 2020 revenues were €2.35 million. There is said to be a high degree of earnings visibility for the rest of the year given contracted or near contracted sales of technology, with the full year numbers expected to be significantly weighted to the second half. The outlook was positive, with global demand for EQTEC’s technology and services said to remain strong, with early indications showing demand increasing as more countries and companies seek sustainable green solutions to waste elimination and energy issues.
These results summarise a landmark year for EQTEC, with the company making significant progress on its revised strategic plan under new CEO David Palumbo. This is now being translated into financial progress, with revenues for Q1 already 40% higher than in the whole of 2019. Going into H2 we can look forward to work commencing on the range of projects recently announced and hopefully see additional deals signed – full detailed commercial offers worth a total of c.€120 million were made in Q1 and early Q2.
Investors have reacted positively to the recent stream of positive newflow, with the shares now trading at a 12 month high of 0.58p and up from 0.155p when we updated coverage on 24th March 2020. However, they remain short of our 0.78p target price which is based on applying a peer based EV/EBITDA multiple to our 2021 forecasts. While shares in peer Powerhouse Energy (PHE) have slipped back in recent days, should EQTEC (which is much more commercially advanced) have an equivalent current enterprise value then the implied share price is 1.6p.
As previously noted, our forecasts are based on the project pipeline as at the date of our update note, so if EQTEC wins further business over the coming months (which is highly likely), our figures have significant upside potential. As ever, this is balanced by our forecasts being sensitive to timing issues and project delays, with these being a major risk to the investment case.
With our target price not yet met and with the potential for a further strong flow of news we see a number of further possible catalysts for the shares throughout the year and thus retain our stance of Conviction Buy.
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