Char Technologies Ltd. (YES:TSX.V) caught the attention of Paradigm Capital, which initiated it with a Buy recommendation, reported analyst J. Marvin Wolff in a November 28 research note. Using its own patented high-temperature, low-pressure anaerobic pyrolysis technology, the company converts biomass waste, including wood, into biocoal (CleanFyre), regenerative natural gas (RNG), and, for use in fertilizers, activated charcoal (sulfaCHAR).
"A combination of secured long-term sources of feed, best-of-breed technology, and long-term offtake contracts, we believe, makes CHAR a successful near- and long-term enterprise," Wolff wrote. "We fully expect it to generate impressive cash flow and earnings over the next five years."
Compelling Return Potential
Paradigm assigned CHAR a target price of CA$1.10 per share, and in comparison, the industrial products company's current price is about CA$0.42 per share, Wolff wrote.
The difference between these figures implies significant potential gains of 162% for investors.
At The Forefront of HTP
In his report, Wolff presented the key points about the company.
CHAR is the only public company using high-temperature pyrolysis (HTP) and the only company in North America able to produce bio-coal at scale at attractive economics, Wolff highlighted.
He added that "the company can grow further as it is a global leader in its field."
Multiple Facilities in Progress
Toronto, Ontario-based CHAR boasts an impressive pipeline of projects, Wolff wrote. The industrial product company aims to deploy its technology at eight different sites in British Columbia, Alberta, Ontario, and Quebec, together ultimately producing a projected 5,000,000 gigajoules per year (5,000,000 GJ/year) of RNG and 100,000 tons per annum (100 Ktpa) of bio-coal, by 2028. Each plant will stand alone and have its own feedstock source(s) and offtake customers.
Currently, three plants are in various development stages, and four are in the feasibility phase. The first plant, featuring a commercial-scale HTP kiln, is slated to come online in Thorold, Ontario. Management expects this plant to initially process 75 Ktpa of wood waste and produce 10 Ktpa of bio-coal and 500,000 GJ/year of RNG. The new facility is on track for completion, and production start in early 2024.
"The diverse geographic nature of each project and joint venture financing will enable CHAR to simultaneously develop several sites at once, allowing rapid EBITDA growth," Wolff commented.
Attractive Economics
The analyst pointed out the compelling economics tied to the plants. The Thorold plant alone, he wrote, should generate CA$20 million (CA$20M) in annual revenue, about one-quarter coming from bio-coal, the remaining three-quarters from RNG. Two companies, ArcelorMittal and a large Canadian natural gas supplier, have contracts in place to purchase these products over the long term. ArcelorMittal Dofasco will use CHAR's bio-coal to feed steelmaking at its Hamilton, Ontario location.
For this first facility, Paradigm estimates EBITDA of CA$8M and capex of CA$35M, and thus, an expected internal rate of return of 29%.
Carbon-Negative Process
CHAR clearly is "an ESG play," Wolff wrote and explained. CHAR's HTP technology is a carbon-negative chemical process as it does not require added energy to work. Pyrolysis allows for RNG to be manufactured from waste wood without leaving a carbon footprint, unlike traditional methods of producing natural gas. HTP eliminates the need to mine and transport coking coal, thereby reducing the energy spent on those activities.
HTP can eliminate or break down PFAS compounds, which persist in the environment. Biocoal, a green replacement for mined coal in steelmaking, can be manufactured through HTP.
"CHAR's bio-coal will be a significant contributor to the decarbonization of the steel industry that is occurring not only in Canada but also in North America and Europe," Wolff wrote.
Endorsements Received
Wolff noted CHAR has been recognized favorably by both industry and government. In the last 12 months, the company received CA$14.2M in government grants, interest-free loans, and offtake contracts for bio-coal.
Additionally, major shareholder, steel manufacturer ArcelorMittal, invested CA$6.6M in CHAR.
"ArcelorMittal has scoured the world looking for the best in breed 'green coal' solution, which CHAR can provide," noted Wolff.
Good Cash Position
CHAR has a favorable cash position, with an estimated CA$21 million pro forma, Wolff wrote. It is expected to start generating cash flow in H2/24.
"In our view, CHAR's biomass to RNG production will generate about 60–70% of the profits that will propel the company forward," Wolff wrote.
Strong Leadership
Members of management and the board of directors collectively hold small-cap experience in the Canadian emerging technology space as well as in chemical engineering, developing and executing projects, corporate building, and working with governments.
At the helm is CEO Andrew White, who invented the now-patented HTP technology and commercialized it over the past 13 years.
On the Horizon
The next major company events for CHAR are the completion of the processing plant in Thorold in early 2024 and the subsequent commencement of production.
Share Ownership
The Canadian company has 115,329,443 fully diluted outstanding shares.
Insiders have a 17% stake in CHAR, half of which CEO White owns. ArcelorMittal holds 11.7%.
Original investors from the 2016 initial public offering, which includes high-net-worth individuals and specialty investment funds, own 30%. The remaining 41.3% is broadly held.
| Want to be the first to know about interesting Technology investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Char Technologies Ltd.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
For additional disclosures, please click here.
Disclosures for Paradigm Capital, Char Technologies Ltd., November 28, 2023
Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months.
Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. Paradigm Capital Inc. research is available on Bloomberg, CapitalIQ, FactSet and Thomson Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc.
About Paradigm Capital Inc.
Paradigm Capital Inc. (PCI) is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive longterm secular growth prospects. PCI’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report.
Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of PCI as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete.
However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities.
PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. PCI is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. PCI will not open accounts except in jurisdictions in which it is registered.
To U.S. Residents: This report was prepared by PCI which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. PCI U.S. , affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through PCI U.S.
