RNG Production And Renewables Projects Will Exceed Capacity In 2025

Key Takeaways

• Increasing RNG production and major project advancements could significantly boost revenue and earnings as capacity and investments scale up.
  
• Declining operating expenses and insurance premiums may enhance net margins and bolster net earnings due to cost optimizations.
  
• Delays and constraints across multiple projects, coupled with financial and operational uncertainties, pose risks to revenue growth and margin stability for EverGen Infrastructure.

Catalysts

Acquires, develops, builds, owns, and operates a portfolio of renewable natural gas (RNG), waste to energy, and related infrastructure projects in Canada and North America.

• The Fraser Valley Biogas facility is increasing its RNG production toward design capacity, with expectations to exceed nameplate capacity in 2025. This could significantly boost revenue as production scales up.
  
• EverGen Infrastructure is advancing major development projects, including GrowTEC and Pacific Coast Renewables, which are expected to achieve Financial Investment Decision (FID) soon. Successful execution could result in increased future earnings.
  
• Decline in operating costs and normalization of utility costs at Fraser Valley Biogas are expected, which might improve net margins as expenses decrease relative to revenue.
  
• An expected 40% decrease in insurance premiums, along with equipment optimizations at Fraser Valley Biogas, could reduce operational expenses, thereby potentially bolstering net earnings.
  
• With robust funding and regulatory progress, EverGen plans to bring 2 to 3 projects to FID annually, presenting opportunities for additional revenue and EBITDA growth from new project deployments.

EverGen Infrastructure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EverGen Infrastructure's revenue will grow by 12.8% annually over the next 3 years.
• Analysts are not forecasting that EverGen Infrastructure will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate EverGen Infrastructure's profit margin will increase from -30.5% to the average CA Gas Utilities industry of 5.1% in 3 years.
• If EverGen Infrastructure's profit margin were to converge on the industry average, you could expect earnings to reach CA$984.8 thousand (and earnings per share of CA$0.07) by about May 2028, up from CA$-4.1 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 44.8x on those 2028 earnings, up from -2.2x today. This future PE is greater than the current PE for the CA Gas Utilities industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 0.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

EverGen Infrastructure Future Earnings Per Share Growth

Risks

• The ongoing delays in securing regulatory approvals for the Pacific Coast Renewables project could hinder the timely execution of development plans, potentially impacting projected timelines and revenue generation.
  
• The seasonal variability and pipeline constraints affecting the GrowTEC facility have already caused production issues, suggesting potential volatility in future revenues and cost management.
  
• The need to achieve full capacity production at Fraser Valley Biogas remains unfulfilled, which may continue to limit revenue growth and the efficiency of capital usage, impacting future earnings.
  
• Any setbacks or difficulties in bringing projects to Final Investment Decision (FID) or securing adequate funding in a challenging financial environment could restrain expansion, affecting both revenue growth and net margins.
  
• Dependence on securing insurance and reducing utility costs to lower operating expenses introduces uncertainty, as any deviation from expected cost improvements could negatively impact net margins and overall financial performance.

Valuation

• The analysts have a consensus price target of CA$2.5 for EverGen Infrastructure 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$3.0, and the most bearish reporting a price target of just CA$1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$19.2 million, earnings will come to CA$984.8 thousand, and it would be trading on a PE ratio of 44.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of CA$0.63, the analyst price target of CA$2.5 is 74.8% 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.