Haywood Securities analyst Colin Healey reports Greenlane Renewables Inc. (TSX—GRN) announced its first deployment of development capital to an unnamed project developer focused on dairy cluster renewable natural gas (RNG) projects in California. Greenlane Renewables designs, develops, sells, and services a range of biogas upgrading systems worldwide.
The capital deployment comes in the form of a US$900,000 convertible loan, which will be funded to the project owner in tranches related to undisclosed development milestones. Greenlane has an embedded option to convert the loan into an equity interest in the project developer.
According to the firm’s press release, the initial investment will fund the unnamed project developer’s efforts to move its planned dairy cluster RNG project forward to the “construction financing” stage (expected by fourth-quarter 2022 and requiring an estimated total capital expenditure of about US$15 million), as well as the project developer’s pipeline of other “development opportunities”.
For context, a dairy cluster project requires the installation of a “digester” and “biogas upgrading system” (supplied by Greenlane) at the host site to produce RNG from manure delivered from proximal farms. In this case the dairy cluster project is sited in California and is scoped to produce an estimated 80 billion BTU (British thermal units) of RNG annually.
The company’s systems remove impurities and separate carbon dioxide from biomethane in the raw biogas created from anaerobic decomposition of organic waste at landfills, wastewater treatment plants, and farms and for injection-food waste facilities into the natural gas grid or for direct use as vehicle fuel.
Project would generate revenue from multiple sources
The project, when built, would generate revenue from multiple sources, including from the sale of “D3 Renewable Identification Numbers (D3 RINs) under the US Renewable Fuel Standard (RFS) program, credits under California’s Low Carbon Fuel Standard (LCFS) program, and physical gas commodity”.
“Today’s announcement is a significant milestone for Greenlane as it marks the advancement of its strategy of expanding into a larger participating role in the projects it builds for its clients which should eventually lead to a larger recurring revenue component in its business,” Mr. Healey says.
“While small, the announcement demonstrates a long-awaited strategic move for Greenlane, into expanding its recurring revenue profile through investment/ownership exposure to the projects it builds for clients.”
Top pick in the RNG industry
Greenlane remains the analyst’s “top pick” in the RNG infrastructure space. He expects the company to continue to grow its international footprint of project installations as Greenlane offers the broadest range of technologies – thus providing it with a strategic advantage versus competitors.
“We see RNG as a critical component of the green energy revolution and continue to see governments world-wide prioritizing it,” Mr. Healey states with a “buy” recommendation and $3.75 per-share target price.
“We see the recent weakness in the stock as an opportunity for investors to steadily increase exposure as the business remains solid and the market for RNG infrastructure opportunities accelerate.”
He continues, “Our 2022 revenue forecast of $69.8 million reflects our view that GRN will continue to generate growth in its pipeline into 2022, leveraging the same product development, sales and marketing strategy that generated momentum in 2021. This is backstopped by a solid sales order backlog and balance sheet ($23.1 million cash and no debt) to support accretive merger-and-acquisitions opportunities.”
Colin Healey is an equity analyst for Haywood Securities.
This is an edited version of an article that was originally published for subscribers in the July 1, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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