EverGen Infrastructure Corp V.EVGN

RBC 2

[retiredcf]

Their upside scenario target is $10.00. GLTA

April 25, 2022

Outperform
Speculative Risk
TSXV: EVGN; CAD 3.73
Price Target CAD 6.00 ↓ 7.00

EverGen Infrastructure Corp.

Facing some development delays; reducing PT to $6.00 (from $7.00)

Our view: We continue to see upside once management executes on its RNG development plans. However, the project delays in both near-term projects, due to factors outside the control of management, reduces the near-term visibility of the company. We are reducing our price target to
$6.00 (from $7.00) to reflect the added uncertainty around the timing and cost of the near-term RNG developments.

Key Points

RNG development delays. Management indicated that the severe flooding that took place in the Abbotsford and Sumas Prairie regions in November 2021 have resulted in significant repairs and reconstruction in the region, causing an administrative backlog, including permitting delays. The company's plans to invest ~$45 million (for ~$9 million in incremental Dividend: 0.00 EBITDA) to add or expand RNG production capacity at its Fraser Valley Biomass (FVB) and Net Zero Waste Abbotsford (NZWA) facilities will likely be delayed. However, management still expects to complete its FVB expansion in 2022.

Expanding eastward. After establishing a hub of three facilities in B.C.,  the company recently signed an LOI to acquire a 67% interest in a biogas facility near Lethbridge, Alberta. Management highlighted that they are also pursuing RNG development opportunities in Quebec and Ontario.

Looking for several updates in the coming quarters. We believe management will be in a position to provide an update on the timing and cost for the RNG development opportunities at FVB and NZWA by mid-2022. Management will also need to negotiate a new long-term offtake contract (existing contract expires in October 2022) at FVB. We also expect the company to close on the previously announced LOI to acquire a 67% interest in a biogas facility in Alberta by mid-year.

Tweaking estimates. We have revised our 2022 and 2023 EBITDA forecast to $3.8 million and $10.0 million, respectively (from $3.1 million and $11.4 million, respectively). The increase in our 2022 estimate is due to the recognition of insurance proceeds in Q1/22 for flooding that took place in November 2021 and depressed Q4/21 results. The reduction in our 2023 EBITDA forecast is due to the delay in the RNG developments.

Reducing price target to $6.00 (from $7.00). We have reduced our price target to $6.00 (from $7.00) to reflect a delay in the company's two near- term RNG developments. Our price target is based on a sum-of-the-parts analysis where we allocate $3.20/share for the operating assets, and $2.60/ share for the RNG development opportunities. Our valuation is based on applying a 9.0x (unchanged) multiple to our 2023E EBITDA for the existing assets, and a 7-8x (previously 8-9x) multiple on the run-rate EBITDA contribution for the development projects. Our $6.00 price target implies an EV to 2023E and 2024E EBITDA of 9.7x and 7.7x, respectively.