Q3/21 Sector Preview
Tangible Financial and Operational Metrics in Focus
TD Investment Conclusion
Q3/21 Preview: Many of the companies in our Clean Technology coverage regularly press release new equipment orders, contracts, operational updates, and other business development activities. As a result, quarterly disclosures rarely feature material announcements of large commercial arrangements or contracts. In this context, we expect Q3/21 disclosures to provide added context on commercialization initiatives, timing and magnitude of future order flow, and large project timetables. To this end, we expect that outperformers throughout the reporting period will be able to demonstrate continued improvement in tangible financial and operational metrics, including, but not limited to, growth or improvements in backlog, revenues, and margins. We also expect that the quarter will feature discussion on how the coverage universe is managing cost inflation and supply-chain pressure, as well as the continued negative impact of COVID-19. See our company-specific commentary on page 2.
Our Sector Stance: OVERWEIGHT
In light of the sector's robust, long-term growth outlook supported by robust and evolving regulatory environment in several key markets, we have an Overweight stance on the sector.
TD Clean Technology Industry View & Top Pick: In our view, the growing conversation around energy transition has resulted in increased institutional investor interest in Clean Technology companies. As a result, many companies in this arena became public over the past 24 months or completed significant equity raises. However, this relevance has also attracted increased scrutiny and the growth in publicly traded options has also invited more detailed comparisons of the relative strength in business models, product and service competitiveness, timelines around commercialization, and other factors as investors increasingly educated themselves on the space. Conversely, skyrocketing natural gas and electricity prices in Europe and rolling blackouts in Northeast China also call into question how quickly renewable power and other low-carbon energy sources can be implemented. In this context, we continue to prioritize companies with differentiated, difficult-to- replicate products and services, with ready-to-commercialize business models and a well-articulated, plausible path to growth and profitability. To this end, our best idea in the Clean Technology space is Anaergia (ANRG-T, SPECULATIVE BUY, $40.00 target price), based on the combination of its broad intellectual property portfolio, strategic focus on municipal waste, the pursuit of a growth-focused infrastructure model, and its ready-to-commercialize business model.