Torrent Capital RecommendationDisclosure: I own GRN and CBLU. GLTA
2
As the world faces the ongoing challenge of climate change and sustainability, the energy sector and related industries are undergoing a considerable transition to clean renewable energy and sustainability. Over the past few months, Torrent has been researching sound investment opportunities in the clean tech industry that are poised for outsized growth. Below are a select few disruptive Canadian companies that Torrent Capital believes will benefit from the world’s transition to clean technology. Torrent Capital has accumulated positions in all three of the presented ideas in recent time.
Greenlane Renewables Inc [TSXV:GRN]
Greenlane Renewables Inc. is a leader in the Canadian marketplace paving the way in renewable natural gas. Greenlane is a provider of biogas upgrading systems for the emerging renewable natural gas (RNG) market. The Company works with landfills, wastewater treatment plants, dairy farms, and other creators of organic waste to convert biogas into clean and marketable RNG for pipeline injection and vehicle use. Greenlane manages the project lifecycle from procurement and design through to on-site installation, commissioning and aftercare services. Aftercare recurring services include preventative maintenance contracts with terms that can range from one to 20 years for a fixed annual fee. The Company operates an asset light model with an outsourced supply chain which positions it to scale commercial efforts and generate solid streams of annual recurring revenue. Greenlane is headquartered in Burnaby, British Columbia.
Greenlane has over 30 years of experience in upgrading biogas into RNG. The Company has the largest globally supplied capacity of projects, including over 100 installations in 18 countries. They supplied the systems for the largest RNG production facilities in both North America and Europe.
Greenlane is the only company to offer all three of the primary biogases upgrading technologies (water wash, pressure swing adsorption, and membrane separation). This provides a material advantage when customizing a mixture of technologies to meet customer needs and allows for a wide range of customers. The company has completed installations for dairy farms, pulp mills, landfills and municipal organic waste.
Source: Greenlane Renewables As of September 30, 2020, backlog orders for Greenlane’s technology and services stood at ~$44M, representing an increase of +350% YoY, in work that will be recognized as projects advance. The contracts included in the order backlog normally convert to revenue over a period of 9 to 18 months. Greenlane also provides a sales pipeline of identified potential upgrade projects which the Company estimates is more than $690M. We believe the Company is in its infancy of an outsized growth phase. It has taken years of R&D investment and perseverance for Greenlane to build its business model, contributing to a greener, more efficient world. The Company has latched onto the RNG market with a robust technology which we believe will provide sizable revenue growth in near to medium term.
We believe Greenlane’s plans to enter the build, own, and operate model provides the Company with potential for significant upside over time. Equipment sales can typically be rather inconsistent, whereas owning and operating asset infrastructure is expected to provide a steady annual recurring revenue stream with higher margins. Greenlane’s joint venture with SWEN Capital Partners aids in de-risking the deployment of biogas upgrading systems – SWEN will be responsible for the financing of the projects whereas Greenlane will provide the equipment and expertise.
Industry tailwinds are robust. FortisBC announced a target of 15% of its gas supply to be renewable by 2030 while SoCalGas (USA’s largest natural gas distribution utility) has committed to replace 20% of its natural gas supply with RNG by 2030. It is estimated that RNG currently accounts for ~0.3% of the North American natural gas network, underscoring the growth opportunity ahead. In addition, UPS has committed to purchase 230M gallon equivalents of RNG over the next seven years to fuel its planned natural gas-powered truck fleet. The Canadian government recently announced plans to spend $2.5Bn to support clean energy projects including renewable power generation. Continued adoption of RNG by governments, corporations, and households provide significant growth opportunities for Greenlane over the foreseeable future. These are just a few examples of tailwinds which Greenlane should be beneficiary of.
Source: Greenlane Renewables GRN’s revenue has been accelerating considerably in recent quarters. The Company has only reported six quarters as a publicly traded company. It reported $9.1M in revenue for F19 which only included 7 months of operations. Sales of biogas upgrading equipment is lumpy but should be become steadier over time as Greenlane implements its build, own, operate model and generates additional, higher margin annual recurring revenue. Revenue growth was 53% QoQ in its most recent quarter (Q320) as the Company continues to execute on its ~$44M backlog and +$690M sales pipeline. The Company is quickly approaching profitability and we expect an up list to the TSX in due course. We also highlight GRN reported near break-even Q320 adjusted EBITDA while growing quarterly revenue 30% YoY.
Clear Blue Technologies International, Inc [TSXV:CBLU]
Clear Blue Technologies International, Inc is creator and manager of innovative products and solutions to meet the growing global demand for reliable, low-cost off-grid energy to power lightning, telecom, and other internet of things (IoT) devices. The Company was founded with the vision of delivering clean, wireless, off grid power for telecom, lighting, internet of things, and other critical use cases around the world. The company is headquartered in Toronto, Canada.
Clear Blue’s patented smart off-grid technology connects solar, hybrid, and wind-powered devices to a cloud-based management system. Combined with its ongoing management service, this technology improves the reliability of systems and reduces maintenance and operational costs up to 80%. This enables wider adoption of off-grid clean energy for a variety of use cases by lowering costs and increasing efficiency.
Source: Clear Blue The Company is still in its infancy of growth and is focused on growing its stream of recurring revenue. Clear Blue manages and operates all its smart off-grid systems which run in 37 countries. Each system is sold with three years of recurring service revenue. The renewal of services after this three-year period is a growth focus for the Company. In North America, CBLU has customers in over 25 states and 8 provinces. Globally, CBLU powers and controls lightning, security, and telecom applications including deployments in Europe, the Middle East, Africa, and South East Asia. Clear Blue’s technology is resilient in extreme climates and remote locations, it empowers local resources to install and support mission-critical applications.
Clear Blue’s technology is what makes it advantageous and economical to its customers. Its strategy is to provide smart off-grid power to support mission critical infrastructure across government and commercial markets, such as clean powered security systems, streetlights, and IoT devices. Its technology is premised on maximum uptime, longest life, and ease of installation and maintenance. Its key competitive advantages lie within its energy forecasting and management, as well as predictive analytics, troubleshooting and remediation. Its solutions are designed to be reliable and have a focus on delivering the lowest total cost of ownership to its customers.
Source: Clear Blue CBLU recently announced a significant contract to sell 400 telecom systems to a major infrastructure operator in Africa. The Company aims to deliver 30% of the systems in Q4 2020 and the remainder in Q1 2021 for an aggregate $5M in revenue. The operator has advised that it has plans for 2,000 additional systems over the next two years. We believe that once CBLU illustrates it can handle and deliver on larger scale orders such as the aforementioned, additional opportunities will arise, and larger deal sizes will become the new norm.
While much of the Company’s attention has been devoted to the telecom sector in 2020, CBLU notes there has been solid growth in the lighting sector, particularly in the US. The recent US election, together with vaccine announcements, signals an increase in infrastructure spending with stable or growing levels of interest in sustainable products like off-grid lighting. We believe there is a significant opportunity for CBLU to capture a slice of increased infrastructure spend in the coming years.
With over 7,000 aggregate systems operating in over 35 countries and more than 4 million operating days of data, Clear Blue has established a first mover advantage in the telecom and lightning sectors. It is now beginning to secure larger deals and gain traction as a key player in the clean tech industry.
An estimated 420M people globally use standalone off-grid solar, while another 47M people rely on mini-grids for access to electricity, according to the World Bank and IFC. Over 2B people worldwide still lack access to reliable electricity, and Wood Mackenzie forecasts that in Africa alone, off-grid electricity demand could be as large as 10,000 gigawatt-hours per million people by 2040. To satisfy demand for electricity in countries where the population is growing faster than the grid, distributed renewables and mini-grid players such as CBLU will need to disrupt traditional utility business models at scale.
MustGrow Biologics Corp. [CSE:MGRO]
MustGrow Biologics Corp. is an agriculture bio-tech company focused on providing natural, biological solutions to replace synthetic chemicals used in high value crops such as fruit & vegetables. It is concentrated on the development and commercialization of non-synthetic AITC (Allyl Isothiocyanate) from mustard seed for use as a natural biofumigant for control of nematodes, soil-borne diseases, and other soil pests. AITC is natural chemical produced by mustard plants to defend themselves against pests and fungal diseases. MustGrow is positioned to disrupt the US$65Bn global pesticide marketplace and is based in Saskatoon, Saskatchewan.
MGRO originally focused its technology on developing a granular pre-plant soil biofumigant and fertilizer which has resulted in its initial product, MustGrow. MustGrow has been approved for use as a fertilizer in both Canada and the US. MustGrow’s Biopesticide is also registered in Canada and the US (apart from California) and is a proven nematicide and fungicide. MGRO has invested over $9M over several years and completed over 100 trials on fruit and vegetables.
Recently, MGRO pivoted away from the granular format and redirected efforts to developing MustGrow in a liquid form with a new delivery platform capable of being applied through drip lines with increased concentration. EPA (US) and PMRA (Canada) registration approval is estimated for 2021.
Traditional solutions to combat pests and fungal diseases in agriculture face significant quandaries as consumers globally are demanding a reduction in the amount and number of pesticides used to produce food crops. Coupled with the increased demand for organic produce, this has resulted in limited options for growers with an increase in potential challenges. MustGrow is poised to benefit from this evolving landscape and growing market opportunity.
Source: MustGrow To satisfy consumer demand, regulatory agencies have responded by significantly restricting or outlawing existing chemistries, thus leaving limited alternatives. However, the long history of chemical treatments of soil and crops combined with tighter restrictions on application rates has resulted in more resistant pest populations. This reduces the effectiveness of those existing chemistries.
The US is the single largest agricultural chemical market in the world. In 2010, the US represented over 30% of global nematicide sales, with the vegetable and fruit market representing over 75% of fumigant sales. The global nematicide market was valued at US$1.2Bn in 2016 and is expected to grow to US$1.4Bn by 2022 with the global biopesticide market growing to $9.5Bn by 2025 from $3.3Bn in 2017.
Source: MustGrow MustGrow recently announced 100% control in the laboratory of Fusarium wilt TR4 (Panama Disease) utilizing its mustard-derived biopesticide. Fusarium wilt TR4 is a devastating disease pathogen currently ravaging the US$25Bn global banana industry. Currently, there are no effective treatments for infected banana plantations, which can cause 100% yield loss. Additional program advancements, both in the laboratory and field, are expected Q1 2021. Torrent views this development as an imminent and material catalyst.
Markets and Markets research sees the global biopesticide market size doubling to US$8.5Bn by 2025. Widely used synthetic chemicals continue to be banned or deregistered globally. The EPA promotes and encourages the use of safer pesticides, requiring much less data to register a biopesticide. The European Commission is seeking to halve the use of chemical pesticides by 2030. Agricultural companies have recently established investments arms to fund, partner or acquire technologies focused on biopesticide and bioherbicide crop protection. Protected with over 18 patents, MGRO is well positioned to disrupt the global pesticide marketplace in an organic, effective and sustainable way.
According to the Food & Agriculture Organization of the United Nations, each year an estimated 10 to 16 percent of global harvests are lost to plant pests and diseases which amounts to over US$220Bn in lost harvests. Pests, pathogens and weeds cause the loss of more than 40 percent of the world’s food supply. The problem is compounded by global limitations on pesticide and fertilizer use, specifically in key growing regions in North America and Europe.
The Company highlights that the impact of disease and nematodes on global crop yields results in over 10% average yield loss for its target end-markets such as bananas, coffee beans, corn, grains and other fruits and vegetables. In short, MustGrow’s technology has shown to be effective in protecting crops from yield loss while keeping maintaining health and protection, resulting in a clear value-add proposition for its customers. MGRO is developing complementary solutions to be applied in other use cases as well.
Source: MustGrow In Conclusion
ESG themed investing is here to stay. The recently published 2020 Canadian Responsible Investment Trends Report reveals that responsible investment (RI) continues to grow rapidly in Canada. The biennial report tracks the scale, trends, and outlook for responsible investment, which refers to investments that incorporate environmental, social and corporate governance (ESG) issues into the selection and management of investments.
According to the report, RI assets grew from $2.1Tn at the end of 2017 to $3.2Tn as of December 31st, 2019. This represents a 48% increase in RI assets under management over two years. RI now accounts for 61.8% of Canadian AUM, up from 50.6% two years earlier. This mounting market share illustrates that Canadian investors increasingly view ESG factors as important components of investment decisions, with an overwhelming majority of 97% of respondents expecting moderate to high levels of growth in RI over the next two years.
Responsible investing is a paradigm shift – not a trend – and Torrent Capital is focused on supporting high quality teams in this new world.