Pyrogenesis Canada Inc T.PYR

PYR has a valuation problem

[BCdude]

I'm a latecomer to this party, having been introducted to the story in late August when I bought a very small position in the mid 5 range. Sold it for a loss on November 13th after the CEO's update on the business made me think twice. At this point I would not buy back in until the share price went below $2.00/share. Maybe lower.

Why? The market has clearly been pricing a large lead order into PYR's share price, and the current valuation is much higher than it should be.

I know some will call me a basher for saying this, but here is my back-of-the-envelope valuation of the company for those who care to follow my reasoning.

I want to emphasize that I believe PYR has much potential, and I anticipate 3-5 years from now it will likely have proven out this part of the business to a much greater extent. That doesn't mean it isn't significantly overvalued in the short term.

PYR's current market cap is ~$620 million compared to 2019 revenue of ~$4.8 million and a 2019 net loss of (~$9.2 million). As of Q2 2020, PYR had generated ~$2.8 million in revenue and a net loss from operations of (~1.9 million). They were able to announce a net income of ~$3.5 million for Q2, but that was only due to the increase in share price of HPQ. This can be reported as revenue, but is also prone to future losses when the investments DECREASE in value. So a very different kind of revenue than selling torches.

PYR has put out some recent good news, including an increase in backlog and the much anticipated navy contract, so let's give them the benefit of the doubt and say that 2020 revenue could end up being a banner year. Having said that, the navy contract will happen over 18 months according to the press release, so the $11.5 million won't happen within one fiscal year. For that reason, I would cap their 2020 revenue at $15 million USD. This means that between June 30th and Dec 31st, PYR will have $12.2 million in revenue to report vs. the $2.8 million in reported in the first six months of 2020. Possible? Maybe. Profitablity is also not a given, and will depend on a variety of factors including the price of HPQ shares.

PYR's CURRENT VALUE

At the assumed $15 million in 2020 revenue, that implies a market cap of $75 million based on 5x sales expectations. This is generous for a small cap company with this kind of revenue, and to be honest you could justify PYR trading at more like 2x revenue, especially considering it hasn't been profitable on an operational basis in recent years.

So pick your own multiplier. But my own valuation, assuming $15 million of 2020 revenue, would be between $45 million and $75 million.

BUT WAIT, YOU SAY, WHAT ABOUT FORWARD EARNINGS?

I guess the big question is what can we expect in 2021?

While today's press release may be a foot in the door, it has made very clear that the large cap iron ore companies make decisions on their own timeframe. I would expect a trickle of sales in 2021, somewhere between 10 and 50. Maybe there will be more, but I would say based on today's announcement that it could also be less.

10 x $1.8 million = $18 million

50 x $1.5 million = $75 million

I'm reducing the per unit price for 50, as I assume they will be discounted further if such a large order is placed.

There will be other revenue too, of course, but it remains to be seen how quickly all of this can be rolloed out. These things often take time, and I wouldn't stay in suspense expecting a massive $100 million+ order anytime soon. There's a much greater likelihood that PYR will continue making progress on a number of fronts, slow and steady ("slow is fast"), but this also means the revenue will show up on the balance sheet over a number of years.

FAIR MARKET VALUE

Which brings us to my own fair value calculation for PYR, which I admit is back-of-the-envelope and mostly focuses on my own expectations for a much slower roll-out of torch sales.

LOW END: $25 million for 2021 (based on five torch sales) = $50 million FMV.

MID RANGE: $50 million for 2021 (based on 20 torch sales @ $1.6 mil) = $100 million FMV.

HIGH END: $100 million for 2021 (based on 50 torch sales @ $1.4 mil) = $200 million FMV.

These valuations are all based on 2x forward-looking revenue, which to me is a reasonable valuation metric based on PYR's current business.

This of course implies a FMV share price in the $0.32 to $1.29 range.

Will the share price sink that low? Probably not. I think many investors will continue to focus on the "huge potential" of the various business segments and it will continue to trade at a premium, at least in the short term. However, I would not personally be a buyer until at least the $2.00 level, and only then a small position. If it srops to the $1.30 level, I would add sigbificantly more.

GLTA

[Shaggy91]

SO ARE The valuations OF TESLA and  all the other  EV stocks going thru the ROOF don't represent FMV , so does 80 percent of other stocks lol THE MARKET IS FORWARD LOOKING AND ALWAYS HAS BEEN .

[BCdude]

If you read what I posted you will see that I considered forward-looking metrics. I wouldn't buy Tesla at the current prices either.

[Asamatteroffact]

Not that far off base IF we were in a normal market dynamic. One in where we don't have negative yilelds push capital to riskier propositions. Cash is essentially useless sitting in an account beyond paying day to day bills & most likely will only get worse given inflation creeping in. Additionally, tech. is highly valued on future growth as some names were thrown around already. Telsa

[Stubbyinsider]

Damn well said. Summed up nicely for the evening !!!

[BCdude]

This is a reasonable response. PYR has plenty of tailwinds, no question, which is why I doubt it gets down as low as $1.30. And probably why I would buy some at the $2.00 level.

[Aarman4]

Well, for me I am okay with todays price to add, no problem whatsoever. I feel that institutional buying on the backs of a year or two  of EPS growth is what will move the PE. the earnings, those I am not too concerned for at all. I have confidence in the due diligence I have done. It is up to you, but I feel waiting for anything lower than $3 going forward is gambling on saving eggs in

[BCdude]

Thanks, Aarman. Always appreciate your level-headed posts, even if I don't always agree with you. I did some deeper DD back in August and came to the conclusion the market was pricing in several very large torch orders. I reached higher than I normally do (I'm a value investor), buying a small number of shares because I liked the story. But quite frankly, I was expecting a minimum initial

[PteRoy]

I'll sum this nonsense up so you guys don't have to read it. This poster has no stock and has no clue what they're talking about. The end...

[canyousayiii]

PteRoy, makes me think of McW!!! That guy was all textbook and no street smarts. Sold and missed out on a huge run. You are so right, buddy.

[BCdude]

Hey canyousayiii, I remember the hate McWhirter got after his Sept appearance on BNN. Turns out he was right all along. I don't wish PYR any ill. I hope they succeed for investors and for the planet. Just trying to add some valuation metrics to the discussion.

[canyousayiii]

Plays like this are very speculative and not based on any fundamentals. But it is useful to have an idea of a market premium. I hold this from anywhere from $3 to maybe even north of $5. I bought into the hype. McW, or an analyst, was criticized in a newsrelease by the company. Clearly something like that is only done with confidence that there is a great discrepancy. Folk here started talking

[BCdude]

Instead of hurling insults, why don't you enlighten us with your own detailed valuation analysis. Let individual stockholders (or potential stock buyers) decide what makes sense.

[PteRoy]

"I would expect a trickle of sales in 2021"  Zero facts here. or this one "it has made very clear that the large cap iron ore companies make decisions on their own timeframe" Nope not made clear at all, just your assumption with zero evidence. Or  "I'm reducing the per unit price for 50, as I assume they will be discounted further if such a

[canyousayiii]

PteRoy, what is the FACTUAL amount of salesbfor 2021? Or amuse us with your guess.

[PteRoy]

I said it before, and i'll say it again. I am not concerned about the amount of sales. It is about validating the tech at this point. It was just validated by most likely the biggest iron ore producer in the world. That is what matters today.  People like to bring up Tesla and other EV's going through the roof. It has nothing to do with sales, their sales are awful. I own a tesla and

[canyousayiii]

So, why 1 torch if validated as working without any doubts whatsoever? I can't think of a rational answer and I will not believe for a milisecond that this is the first NR that Peter insisted on for his own strategic reason knowing that uncleron, who he cited, is a pumper planting seeds of 100s. Give us a good reason.

[PteRoy]

Look... If you think that a company with over 6billion in cash has spent months negotiating a contract for one torch then I just cant help you. You're not reading what is actually being said in the news release. You're choosing to fixate on one item and assuming because that one item isnt what you wanted, then it must all be bad. IT ISNT. It is FANTASTIC. Is it as good as selling 1000

[Whippersnapper7]

right on PteROY! PYR long and strong!!

[developbc]

Maybe the analysts from Mackie Reasearch Capital are stupid and didn't do and DD?.OF COURSE NOT!!  That post was not worth replying to so thanks to most already pounding it down from a poster that claims he sold and wants to buy cheap w obvious agenda.  With no proper mention of disruptive divisions that are on the launch pad now PUREVAP NANO, 3D POWDERS, WASTE DESTRUCTION, TUNNELING

[BCdude]

I have to say, I expected better from you developbc. I've always appreciated your thoughtful comments on this thread. You seem to think I am attacking PYR. I'm merely sharing a "back if the envelope" valuation as I see it. Disregard it if you see fit.

[developbc]

Not trying to attack you personally whatsoever.  VERY familiar with back of the envolope valuation as I do that in my day to day business often BUT to try to attempt to valuate PYR in that fashion is not only unfair but very unwise.  As stated, to get inside the door with this multi billion dollar giant is groundbreaking massive.   There is too much explosive upside with PYR in

[BCdude]

Funnily enough, you don't seem to have any of those facts either. Sounds like you are speculating just like the rest of us. If you believe there will be massive torch contacts signed in 2021, then by all means buy more PYR. I admitted before that my calculations were "back of the envelope." At least I tried to make some calculations. And yes, there are plenty of unprofitable tech

[PteRoy]

Well this guys post from yesterday didn't age well. 

[Stubbyinsider]

He became a fossil real quick didnt he! I turned my account off when we hit $3.85 today and decided to check in tonight..... and by golly I walked into a God damnned diamond mine!! Love it! PYR is the best.

[BCdude]

You can only go on what you have in front of you, as I did, but unlike many on this board I am always willing to consider other intelligent viewpoints without my blood pressure rising. I'm also willing to change my mind when presented with compelling evidence contrary to a current view, and with the recent Q3 news there is more reason for optimism than I had last night. While there are still

[gizmo66]

take your cr$p and go f*ck yourself shorty

[BCdude]

Thanks, but I'd rather put you on ignore -- despite your valuable analysis and all.

[gizmo66]

I hate to think you live in beatiful B.C and could be my neighbour but just proves there is scum all over the world

[canyousayiii]

Yes, Gizmo, you certainly are an excellent example. Enjoy your evening.

[gizmo66]

dont wish harm on too many people but I sure hope you shorties burn in hell

[Stubbyinsider]

You're wrong. You're way way way wrong. You might be new to this, let me enlighten you. The market doesn't live in the moment, it never has, it never will. I assure you this news today will catapult PYR. The market absolutely is forward looking. PYR is going on day 3 of TSX where a lot of smart people with deep pockets will see the massive opportunity with PYR and will place their bets

[Thinkbigsti69]

Like usual Stubbyinsider you hit the nail on the head! Like you said this will jump-start the stock price.

[BCdude]

Sounds good. Let's see what happens. :)

[Stubbyinsider]

Market reacts and knows more than us, leave it that for now.

[Whippersnapper7]

is that a threat BC...better not be. 

[Aarman4]

I wouldn't call you a basher for explaining your valuation methods... Perhaps it is my eyes, but did you add in anything more than military and torch? Also, the backlog of contracts shows up as liabilities, so count on it as double. That being said, by traditional valuation metrics, we are still overpaying right now for Pyrogenesis. I am okay with that, as my time horizon is well past 3

[canyousayiii]

Aarman, why would you double liabilities to get the revenue number? The backlog is contracted sales that will turn into revenues as they get completed. $40 million, or now $41.8 will hit the income statement this and next year.

[Ragingbull255]

This post has been removed in accordance with Community Policy

[kjs4381]

I was expecting a larger number, but after thinking it through, I think company A is starting with one but only to see how easy it is to replace the existing burner. Then if everything checks out there will be a much larger order to follow. It does make sense. Jmo

[Brigon]

Absolutely agree, all looks good until you get the torch to site, then you find out what mods you have to make. Does some piping need to be rerouted? Is there any instrumentation in the way? What is the best way to get power to this torch? Does this torch fit into our usual start up and shutdown sequencing? Any troubleshooting info to the hmi?  Does the plasma interferes with any of our other

[Brigon]

Absolutely agree, all looks good until you get the torch to site, then you find out what mods you have to make. Does some piping need to be rerouted? Is there any instrumentation in the way? What is the best way to get power to this torch? Does this torch fit into our usual start up and shutdown sequencing? Any troubleshooting info to the hmi?  Does the plasma interferes with any of our other

[Ragingbull255]

This post has been removed in accordance with Community Policy

[Ragingbull255]

This post has been removed in accordance with Community Policy

[Thinkbigsti69]

Expected. Shares will transfer to stronger educated holders.

[Whippersnapper7]

I agree

[Ragingbull255]

This post has been removed in accordance with Community Policy

[Asamatteroffact]

WANT TO BET IT WILL BE CLOSER TO $4 THAN $2 BY CHRISTMAS?? $1000 BUCKS IN SHARES, I'M DOWN!

[Shaggy91]

WE ALL KNOW WHO THE PAID BASHERS ARE HERE JUST LOOK AT THERE HISTORY LOL THEY WILL BE ALL GONE ONCE THE NEXT DEAL COMES UP LOL WHY U THINK PETER BROUGHT UP LEASING ? THERE MAY BE SURPRISES SOON:)

[BCdude]

This is a very sensible reply. Thank you. I was keeping in mind the backlog, only part of which (the part uncompleted but received revenue for) is on the liability side of the balance sheet. So that $5.6 million in Q2 will be realized as revenue when the work is completed. So yes, a double on the balance sheet, but only a single on the income statement. The question I have is how long will it

[Asamatteroffact]

In 2-5 years this company valuation will be closer to $5B I assure you providing they continue to execute on this trajectory!! Sound like you're a boomer investor that uses very old & antiquated metrics used to price Kodak or GE years ago?

[BCdude]

I guess we will have to wait and see. :)