Eguana Tech: Cormark Initiates Coverage With $0.70 Price Target
On Friday, Eguana Tech (TSXV: EGT) received its third analyst price target, with Cormark Securities initiating coverage with a C$0.70 12-month price target and buy rating. Upon initiating, they stated that they are expecting the company to see a quarterly run rate of over 1,000 units exiting 2022. They add, “While there is still risk given the false starts of the past, the US market is growing rapidly, suggesting EGT is on the cusp of finally realizing its long-awaited promise.”
There are three analysts covering the stock, all of which have buy ratings and the average 12-month price target sits at C$0.73. This represents a 127% upside to the current stock price. The street high sits at C$0.75 from Raymond James.
On the recent developments out of Eguana, they commented that the company has received their first major order through its Omega EMS division, the order was for 5 MW of systems. The total value of the order was $11 million, which Cormark says is on the lower end of the $10,000 to $25,000 range per unit. The order is said to be related to CED GreenTech, whom has received over $12 million in orders in just eight weeks for the systems.
On the firms recent foray into the microinverter market, Cormark notes that though Enphase currently holds a rough 80% of the market share in the United States, they comment that “Installers have been looking for alternative suppliers.” With Eguana recently announcing its expansion into Solar Microinverters, the company can compete and offer a complete solution, spanning from the back of the panel through the power storage. Cormark believes this will help Eguana’s ability to grab more of the market share.
On the fourth quarter and full-year results, Cormark says that the quarter was very promising and the investment into inventory helped to reduce the effects of supply chain issues to weeks, rather than multiple months. Though they note that investors were frustrated as the company reported a sequential decrease in revenue in gross margins, they believe that this quarterly lumpiness will continue into the foreseeable future.
Cormark says that Eguana has seen its revenue go through a 24-month cycle as new markets and products come online, they gain success in those markets, then subside. Though, Eguana has been able to increase its base level of sales after every cycle. Additionally, they write “the relationship with Omega EMS should have a major difference as the distribution channels expand and the product branding improves.”
For the company outlook, Cormark says that they believe their partnership with Omega EMS will be the main driver of revenue over the next several years, with the most growth coming from the United States, rather than Germany, Hawaii or Australia. The contract underpins 10,000 units over 3 years, with Cormark’s estimates that Eguana will hit a 1,000 unit quarterly run rate by late 2022, though they believe that the next two quarters will only show small increases in production.
Lastly, Cormark expects both gross margins to rise modestly as well as the average selling price. For margins, they expect that margins will slowly rise to between 7% and 12% after the normalization of freight costs. Then when the average selling price rises, which they expect to grow to $17,000, from $11,000 currently, that margins will eclipse 20%.
Below you can see Cormark’s 2022 to 2024 revenue and EBITDA estimates.
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