EverGen Infrastructure Corp.
On track to achieve development milestones in the coming months
Our view: The focus remains on the execution of the $45 million RNG expansion projects at FVB and NZWA, with construction set to begin next spring (completion in early 2023). We are reiterating our Outperform, Speculative Risk rating as we continue to see significant value creation when the projects are completed. However, we have reduced our price target to $7.00 (from $8.00), reflecting less value we attributed to developments beyond the two near-term projects due to limited visibility.
Key points:
Focus remains on project execution. The company currently has two expansion projects underway at the Net Zero Waste Abbotsford (NZWA) and Fraser Valley Biogas (FVB) facilities at a cost of $45 million, providing an incremental EBITDA contribution of $10 million when completed in early 2023. Prior to the start of construction next spring, we expect management will finalize the FVB offtake agreement, the EPC and equipment supply contracts, and financing in the coming months. Management has also applied for government grants focused on supporting investments in biofuels, which could provide upside to the project economics if successful. Please refer to page 2 for additional details.
Potentially adding to development pipeline by year-end. Management has been reviewing a number of RNG opportunities, and may reach an agreement by year-end to acquire an interest in an early-stage RNG development. A potential arrangement could be EverGen funding ongoing development costs in return for a stake in the project.
Limited impact from flooding at Fraser Valley Biogas. Due to the severe flooding in Abbotsford and Sumas Prairie regions in mid-November 2021 and the evacuation orders in place, the FVB facility remains temporarily offline. We expect the negative impact from the outage would be partially offset by higher volumes (tipping fees) at the other two EverGen facilities due to the re-routing of organic and livestock waste within the region. With insurance coverage in place expected to cover any resulting financial and/ or business loss, management does not expect a material impact to the FVB facility. Management may also take the opportunity to accelerate the equipment replacement as part of the expansion plan.
Tweaking our forecast, reducing PT to $7.00. We have increased our 2021 EBITDA estimate to $3.3 million from $3.0 million to primarily reflect stronger-than-expected Q3/21 results, offset by reduced contribution from the FVB facility in Q4/21 (temporarily offline due to regional flood). We also reduced our 2023 EBITDA estimate to $11.4 million (from $12.8 million), to reflect our assumption that the commissioning of the two RNG expansion projects take place at the end of Q1/23 (rather than Q4/22). We have reduced our PT to $7.00 (from $8.00), reflecting less value we attributed to developments beyond the two near-term projects due to limited visibility on the medium term development pipeline.