Decarbonization Trends Will Drive European Infrastructure Expansion

Key Takeaways

• Expansion in Europe and improved project execution boost growth, earnings quality, and market share amid strong decarbonization demand and supportive policy trends.
  
• Scalable solutions and recurring contracts with major customers increase cash flow predictability and enhance long-term earnings visibility.
  
• Ongoing profitability challenges, geographic and customer concentration risks, operational setbacks, high capital intensity, and increasing competition threaten revenue stability, earnings growth, and market positioning.

Catalysts

Provides solutions for the generation of renewable energy and conversion of waste to resources in Italy, North America, Europe, the Middle East and Africa, and the Asia Pacific.

• The sharp increase in revenue backlog (up 137% since year-end 2024 and driven mainly by new contract signings in Europe and North America) suggests accelerating demand for Anaergia's solutions as regulatory and ESG pressures push customers toward decarbonization, likely supporting higher future revenues and revenue visibility.
  
• Expansion into high-growth and well-subsidized European markets-with multi-project agreements like Techbau and Capwatt-positions Anaergia to benefit from sustained policy-driven demand for renewable gas and waste-to-energy infrastructure, which should drive outsized top-line growth and improved earnings quality.
  
• Company-wide improvements in project execution and cost discipline, highlighted by doubling gross profits and a meaningful jump in gross margins (from 17.6% to 32.5%), indicate operating leverage and better scalability, pointing to structurally higher net margins and earnings going forward.
  
• The ramp-up and successful operation of build-own-operate (BOO) facilities with repeat blue-chip customers (Amazon, Costco, Irving Oil) demonstrate Anaergia's ability to generate predictable, recurring cash flows from long-term RNG supply contracts, likely enhancing EBITDA stability and improving long-term earnings visibility.
  
• Growing market credibility, global partnerships, and a scalable, end-to-end solution platform enhance Anaergia's ability to capture market share as adoption of RNG/biogas in energy transition accelerates, providing a tailwind for future revenue growth and margin expansion.

Anaergia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Anaergia's revenue will grow by 17.9% annually over the next 3 years.
• Analysts are not forecasting that Anaergia will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Anaergia's profit margin will increase from -33.9% to the average CA Commercial Services industry of 4.6% in 3 years.
• If Anaergia's profit margin were to converge on the industry average, you could expect earnings to reach CA$9.0 million (and earnings per share of CA$0.04) by about August 2028, up from CA$-40.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.1x on those 2028 earnings, up from -5.8x today. This future PE is greater than the current PE for the CA Commercial Services industry at 24.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.47%, as per the Simply Wall St company report.

Anaergia Future Earnings Per Share Growth

Risks

• Despite recent improvements in revenue and gross margin, Anaergia continues to report net losses and negative adjusted EBITDA, indicating persistent challenges in achieving consistent profitability; this ongoing lack of positive earnings may constrain the company's ability to reinvest for growth and could pressure share price if not reversed.
  
• The company's revenue growth is heavily reliant on capital sales and project execution in a limited set of geographies, with backlog gains concentrated in North America and Italy, while Asia Pacific revenues declined-this geographic and customer concentration increases exposure to local market downturns and contract volatility, potentially leading to unpredictable revenues.
  
• Ramp-up and underutilization issues are evident in certain BOO (Build-Own-Operate) facility revenues, as highlighted by production not yet reaching full capacity; if delays or operational difficulties persist, anticipated recurring revenues and associated margins from these long-term assets may fall short, undermining earnings growth expectations.
  
• Anaergia's business remains highly capital intensive, and while cost management has improved, sustained investment in large projects and asset ownership may strain cash flows, increase leverage or require dilutive equity financing, all of which can negatively impact net margins and per-share earnings over time.
  
• Intensifying global competition from alternative waste valorization technologies, increased regulatory scrutiny on lifecycle emissions, and the risk of policy shifts favoring electrification or other renewables could erode Anaergia's projected addressable market, resulting in lower future revenue growth and margin compression.

Valuation

• The analysts have a consensus price target of CA$1.3 for Anaergia based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$197.0 million, earnings will come to CA$9.0 million, and it would be trading on a PE ratio of 36.1x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of CA$1.38, the analyst price target of CA$1.3 is 6.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.