Tidewater Renewables - Globe and Mail Tidewater Renewables Ltd. (LCFS-T) “offers attractive growth through capital projects in the renewable fuels industry, supported by strong industry fundamentals, including increasing regulatory support,” according to CIBC World Markets analyst Robert Catellier.
He was one of a group of equity analysts on the Street initiated coverage of the subsidiary of Tidewater Midstream and Infrastructure Ltd. (TWM-T) after coming off research restriction following its Aug. 18 initial public offering.
Seeing Tidewater Renewables “poised for substantial upside” if the Canadian Clean Fuels Standard is adopted, Mr. Catellier gave it an “outperformer” rating.
“As a pure-play on renewable fuels, the company’s outlook and projects are supported by the megatrend of decarbonizing the economy to achieve net-zero 2050 targets,” he said. “With Canada having lower penetration rates of renewable fuels, the tailwinds from increased demand could be quite strong. Renewable diesel is one way to help meet greenhouse gas reduction goals without making major changes to vehicle fleets.”
“The company’s shares provide investors with exposure to the Low Carbon Fuel Standard (“LCFS”) credit market and renewable fuels: Despite some short-term noise related to U.S. supply and demand, we are bullish on the outlook for BC LCFS credit pricing based on encouraging long-term supply and demand fundamentals. Tidewater Renewable shares represent one of the few ways for investors to gain this exposure, and the approaching onset of the Canadian Fuel Standard could provide meaningful upside for investors. LCFS exposure can serve as a hedge to environmental compliance risk elsewhere in investors’ portfolios.”
The analyst said he expects renewable diesel production to “dominate Tidewater Renewables’ story in the near term,” however he also emphasized its assets and growth projects in renewable natural gas and hydrogen industry. He thinks the provide exposure to “critical elements in decarbonizing the economy.”
Touting its enticing valuation, he set a target of $26 per share.
“The shares are trading at a valuation of 3.5 times our 2023 EBITDA estimate, an attractive valuation even in light of the project development risk,” said Mr. Catellier. “Even on 2022 estimates, which doesn’t include a contribution from the capital projects, the shares are trading at 10.5 times EBITDA. The company is fully funded for its initial project and should be in a net cash position in 2024, in solid financial shape to pursue additional projects.”
Elsewhere, seeing an “enticing valuation with significant upside,” Scotia Capital analyst Justin Strong initiated coverage with a “sector outperform” rating and $20. target.
“We believe TWR is well-positioned to pursue its strategy and create shareholder value. Our thesis and recommendation are based on TWR’s (1) enticing valuation with significant upside above our target price, (2) strong growth outlook, (3) early-mover advantage in growing market with regulatory tailwinds, (4) opportunity to invest in other renewable fuels at attractive multiples, and (5) experienced management team,” he said.
Meanwhile, RBC Dominion Securities initiated coverage with an “outperform” rating and $20 target.