H2O Innovation Ord Shs HEOFF

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H2O Innovation Inc. is a Canada-based water solutions company, which is focused on providing technologies and services to its customers. The Company designs and provides custom-built, and integrated water treatment solutions based on membrane filtration technology for municipal, energy and natural resources end-users. The Company’s segments include Water Technologies & Services (WTS), Specialty Products (SP), and Operation & Maintenance (O&M). WTS segment designs and builds custom water, wastewater, and water reuse systems. It is engaged in applying membrane technologies and engineering expertise to deliver equipment and services to municipal and industrial water, wastewater, and water reuse customers. SP segment manufacture and supply a complete line of specialty chemicals, consumables, and engineered products for the global water treatment industry. O&M provides contract operations and associated services for water and wastewater treatment systems.

OTCQX:HEOFF - Post by User

H2O Innovation Ord Shs

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Post by Nadia6519on Sep 29, 2022 5:44am

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Post# 34994101

National Bank

H2O Innovation Inc.

Positive Quarter With Strong Organic Growth Despite Some Inflationary Margin Impact

HEO (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$2.16 Outperform (Unchanged) C$3.25 (Unchanged) 50.5% Q4/f2022 Review Strong revenue growth but some inflation impact on margins HEO reported Q4/f22 with revenues ahead of forecast on solid growth (+48% y/y vs. +30% est.) with the majority organic (32% y/y / $11.2 mln vs. our 18% est.) driven by volumes (less than 5% of y/y growth from pricing and mainly in SP segment). While adj. EBITDA was overall in line with our est., inflationary pressures (some starting to ease) continued to have an impact in fQ4 with an Adj. EBITDA margin of 9.1% / 8.2% (incl. / excl. a tax credit) vs. our 9.5% est. & 8.8% in Q4/f21.

Overall, Q4/f22 revs were $52.0 mln (vs. $45.8 mln est.), Adj. EBITDA incl. / excl. tax credit was $4.8 mln / $4.3 mln (vs. $4.4 mln est.) and Adj. EPS incl. / excl. tax credit was $0.02 / $0.01 (vs. $0.01 est.). Street was seeking revs / EBITDA / EPS of $46.8 mln / $4.3 mln / $0.01.

WTS ahead of forecast; SP and O&M largely in-line The O&M segment reported rev growth of +44% y/y (+14% y/y organic) to $25.7 mln (vs. $24.7 mln est.) and EBAC of $3.5 mln (vs. $3.5 mln est.) with some inflation-driven margin impact (14% vs.14% est. & 15% in Q4/f21). Some O&M contract pricing increases are tied to CPI, and HEO can implement them at contract anniversaries.

The SP segment reported rev growth of +29% (organic) to $13.4 mln (vs. $12.9 mln est.) and EBAC of $3.4 mln (vs. $3.4 mln est.) with margin gain (26% vs. 26% est. & 25% in Q4/f21) given a shorter sales cycle and ability to increase prices more frequently. The WTS segment reported rev growth of +84% to $13.4 mln (vs. $12.9 mln est.) and EBAC of $1.0 mln (vs. $0.5 mln est. & $0.6 mln in Q4/f21) that was driven organically by higher sales of water treatment projects / services. While margins were a bit impacted (7.5% vs. 6.5% est. & 8.4% in Q4/f21) from higher material costs, HEO expects to pass price increases over time.

Maintain Outperform rating and $3.25 target We maintain a positive view and $3.25 target, which implies ~14.5x f2024 EV/ EBITDA.

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