British Columbia Mandates Will Foster Canadian Renewable Diesel Demand

Key Takeaways

• Regulatory changes and higher demand for Canadian renewable diesel are set to boost top-line revenue growth and margin improvement.
  
• Enhanced financial flexibility and stable offtake agreements support long-term investment, predictable revenue, and reduced balance sheet risk.
  
• Profitability and revenue are at risk from ongoing policy uncertainty, operational challenges, and aggressive competition, raising concerns about the sustainability of core earnings.

Catalysts

Engages in production of renewable fuel in North America.

• Regulatory changes in British Columbia increasing the renewable fuel requirement for diesel from 4% to 8%, along with mandates for Canadian production, are expected to drive sustained demand for Tidewater’s renewable diesel and support top-line revenue growth.
  
• The increase in U.S. D4 RINs values and stable California LCFS values have raised import parity prices, thereby supporting higher margins and improved profitability for domestically produced renewable diesel like Tidewater’s.
  
• Multi-year offtake agreements, including the recent surge in customer demand seeking Canadian content credits, are creating more stable and predictable revenue streams that could underpin future earnings growth.
  
• Successful operational ramp-up of the HDRD complex following minor setbacks, with planned maintenance and efficiency investments, positions the company for higher utilization rates and improved cost structures, benefiting net margins over time.
  
• The refinancing and maturity extension of Tidewater’s credit facility has significantly enhanced financial flexibility, reducing near-term balance sheet risk and ensuring the company can continue to invest in growth and margin expansion initiatives.

Tidewater Renewables Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tidewater Renewables's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -96.6% today to 11.5% in 3 years time.
• Analysts expect earnings to reach CA$55.3 million (and earnings per share of CA$1.9) by about August 2028, up from CA$-360.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 3.9x on those 2028 earnings, up from -0.3x today. This future PE is lower than the current PE for the CA Oil and Gas industry at 12.4x.
• Analysts expect the number of shares outstanding to grow by 4.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.55%, as per the Simply Wall St company report.

Tidewater Renewables Future Earnings Per Share Growth

Risks

• The Tribunal's rejection of Tidewater's trade complaint leaves the company exposed to subsidized, dumped U.S. renewable diesel imports, which could continue to distort the Canadian market, create pricing pressure, and negatively impact revenues and net margins.
  
• Company's profitability is heavily reliant on supportive provincial and federal policies—any rollback or insufficient strengthening of biofuel mandates, carbon intensity standards, or Canadian content requirements could reduce demand and limit revenue growth.
  
• Persistent operational risks, such as underutilization of the HDRD complex (running at only 75% of capacity in Q1) and unplanned outages (e.g., equipment fires), could erode earnings and suppress net margins through lost production and increased maintenance costs.
  
• Tidewater’s financial results are currently propped up by unrealized gains on derivatives and equity investments, while core EBITDA remains under pressure from low-margin contracts and ongoing market volatility, raising questions about the sustainability of earnings.
  
• The company faces significant competitive and regulatory uncertainties, as continued strong U.S. import incentives, volatile credit prices, or policy delays may compress margins, increase revenue volatility, and undermine stable long-term profitability.

Valuation

• The analysts have a consensus price target of CA$4.125 for Tidewater Renewables based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$5.5, and the most bearish reporting a price target of just CA$3.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$481.3 million, earnings will come to CA$55.3 million, and it would be trading on a PE ratio of 3.9x, assuming you use a discount rate of 8.6%.
• Given the current share price of CA$2.89, the analyst price target of CA$4.12 is 29.9% higher.
• 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.