Acumen Initiate Coverage Tidewater Renewables Ltd. is set to benefit from a “first mover advantage in a supportive regulatory environment,” according to Acumen Capital analyst Trevor Reynolds, who sees a “significant growth runway.”
He initiated coverage of the subsidiary of Tidewater Midstream and Infrastructure Ltd. which began trading on the Toronto Stock Exchange after its initial public offering on Aug. 18, with a “buy” recommendation.
“TWR is in a unique position to capitalize on an energy transition which is nearing an inflection point,” said Mr. Reynolds. “Canada is currently producing only a nominal volume of renewable diesel from the Parkland refinery (Burnaby, BC), thus TWR has a first mover advantage as they work to lock up long term feedstock agreements. Low carbon fuel projects are supported by an established fuel credit market in B.C. which results in a projected 1.4-times net build multiple on TWR’s initial renewable diesel project being constructed at Prince George. We note a Canada wide regulatory framework is expected in 2023 which has the potential to further improve TWR’s economics, while demand for renewable fuel products is already established south of the border by credit markets in California, Oregon, and Washington.”
“The initial assets acquired through the spin-out transaction generate approximately $40-million of run rate EBITDA and operate under long-term take or pay contracts with TWM as the primary counter party. Moving forward the initial focus will be execution on the renewable diesel project at Prince George which is expected to be the primary driver of EBTIDA increasing to over $150-million in 2023. Furthermore, TWR has identified two renewable natural gas projects (total capex $80-million) as medium to longer term opportunities. Including hydrogen and CCUS, TWR has identified more than $1.8-billion in potential projects.”
The analyst set a target of $22.75 per share. The current average on the Street is $20.63.
“Our group of comparable companies for TWR include both biofuel/RNG producers and traditional refiners. TWR currently trades at significant discount to its peers as we look into 2023. We believe over time as projects come online, cash flow compounds, and investors gain comfort around TWR’s ability to execute on its business strategy, the valuation gap will moderate,” he said.