June 22, 2021 - Anaergia has priced its IPO well below expectations - at $14.00 per share for gross proceeds of $175 million or $201.25 million if the over-allotment option is exercised in full. 

Following the closing of the offering, Anegeria will have 26,223,495 Subordinate Voting Shares and 32,222,369 Multiple Voting Shares will be issued and outstanding if the Over-Allotment Option is exercised in full. This gives it a market cap of approximately $818M, far below, the $1B market cap it was seeking initially. 

This one surprises us. Perhaps the investor roadshow was not convincing enough and that there are doubts about its ability to meet lofty growth expectations. As mentioned previously, the company has no single competitor but multiple competitors across several verticals. This makes direct valuations difficult. 

What the underpricing does tell us - the industry is still suffering from lack of interest. We've seen many in the industry plummet in price year to date, and the lack of interest in Anaergia's IPO is yet another sign that the industry isn't generating nearly the type of interest that it did previously. 

It'll be one to watch but given the lack of interest, we are taking a wait and see approach despite reasonable valuations. Anaergia is expected to begin trading on Wednesday, June 23 under the symbol "ANRG". 

June 9, 2021 - On Monday this week, Anaergia filed its preliminary prospectus as it seeks to list on the TSX Index. Anaergia anticipates to issue between 10,000,000 and 11,765,000 shares a prices between $17-20 per share for gross proceeds of $200 million, $230M if the over-allotment option is exercised in full.

The company intends to list under the symbol "ANRG". 

Assuming an offering price at the mid-range ($18.50 per share), Anaergia will have 23,313,517 Subordinate Voting Shares and 32,222,369 Multiple Voting Shares issued and outstanding (24,935,138 Subordinate Voting Shares and 32,222,369 Multiple Voting Shares if the over-allotment option is exercised in full). This gives it a market value of $1.058B assuming everything is fully exercised.

Anaergia is an integrated waste-to-value platform. The company is a global leader in converting organic waste into RNG, clean water and fertilizer. The company's end-to-end solution includes waste processing through the Organics Extrusion Press (OREXTM), anaerobic digestion with its Omnivore® solution, biogas conversion to RNG, liquid residue treatment with Fibracast membrane technology for clean water, fertilizer recovery with its ammonia recovery technology and residue treatment to create high value fertilizer with its unique pyrolysis process.

While there are many younger players in this industry, Anaergia is one of the industry leaders. The company has a proven product, business model and has been growing revenue at a 41% compound annual growth rate over the past three years. 

The company has a pretty significant global footprint with installations across the globe. Last year, North America accounted for 45% of revenue, followed by EMEA (44%) and Asia-Pacific (11%). In 2020, the company achieved profitability for the first time as it booked $3.1M in adjusted EBITDA. Here is a nice snapshot of the company's future expectations:

It is worth noting here that the company has a pretty significant backlog. It expects that 60-75% of revenue will come from this backlog, with additional coming from its Selected and Incremental Development Pipelines. Of note, BOO stands for Build, Own and Operate and is key as they generate long-term predictable cash flows and overall, provide higher gross margins (60-70% range). 

Management believes that it can grow revenue from $128M in Fiscal 2020 to between $360-$410M in 2022 and $490-560M in 2023. That is equal to a CAGR of ~60% over the next three years. Additionally, it expects to grow adjusted EBITDA from $3.1M to $55M at the mid range in Fiscal 2022. 

Can it achieve this growth? That'll be key - the industry is ripe with growth and those that can deliver on results will be sure to gain favour with investors. Thus far, the company is progressing well as revenue in Q1 of Fiscal 2021 was up by ~61% - right inline with the outlook. Adjusted EBITDA was also strong coming in at $2.6M vs a $0.9M loss last year.

As of the last twelve months, Anaergia is trading at 7.14 times sales and that drops to 2.8 on a forward basis assuming it can reach lofty Fiscal 2022 growth. It also has an  EV/EBITA ratio of 146 which is pretty high. That however, drops to 27 based on the Rialto-run rate adjustment and to 17.5 on a forward (Fiscal 2022) basis. 

According to the company, it is not aware of any direct competitor that offer "end-to-end integrated technology platform for organic waste processing similar to 'theirs;". There are however plenty of competition across key verticals. See chart below:

As you can see - there are so many different companies across the verticals, it makes comparable valuation difficult. That being said, there are quite a few that are publicly traded. In the Landfill/Gas-to-Energy and Dairy/RNG segments, Ameresco (AMRC), Montauk (MNTK) and Aemetis (AMTX) are US-listed and are all trading at around 2 times LTM sales and have expected annual revenue growth rates between 15 and 30% through 2023. 

Darling (DAR) and Renewable Energy Group (REGI) are also US-listed and are trading at 3 and 1.5 times sales respectively. The have similar expected growth rates, but are also generating positive net income. 

We are familiar with Xebec (TSX:XBC) and Greenlane (TSX:GRN) which are trading at 5 and 7 times sales and are expected to growth by triple digits this year. The renewable energy companies are also well known and are trading between 3.5 and 6 times sales. 

The range of EV/EBITDA ratio for all the companies above which are actually generating positive EBITDA is anywhere between 20 and 38. At 27, Anaergia is right in the middle. 

Lots to digest here, but based on the company's unique model and expected growth rate - the company looks attractively valued. Given this, we expect strong demand for its IPO and it would not be surprising if the company priced at the high end. 

This is one to watch. It is also important to be cautious with these flashy numbers. As we've seen with XBC, estimates are only as good as the company's execution against them. As a new publicly listed company, it will be important for Anaergia to deliver against expectations. Remember, not everyone will have issues with XBC. Case in point, GRN has done quite well against expectations. 

If interested, we strongly recommend you review the company's prospectus - it is one of the best we've seen in some time. Incredibly detailed in their financial assumptions, and explains their business model quite well. 

We'll have to see where this prices, but we like what we see even if the company prices at the high end of expectations.