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Tidewater Renewables (TSX:LCFS) Files to List on the TSX Index

Posted on July 23, 2021 by Mathieu Litalien

August 12, 2021 - On Thursday, Tidewater announced that it was upsizing its offering to $150M - back to its original intentions. The company has priced its IPO at $15.00 per share - near the top end of expectations. 

The company expects to begin trading tomorrow - Friday, August 13 even though the IPO itself isn't expected to close until August 18.

Unfortunately, there are still no details in terms of shares outstanding which means it is very difficult to put a value on the company. Given the company raised near the top and and decided once again raise $150M it looks like demand was pretty robust. 

For now, we'll have to go on the assumptions made last week, which gives it market cap of around $500M. 

July 27, 2021 - On Monday, Tidewater revised its preliminary prospectus to include pricing details. The company is now looking to raise $125M at prices between $13-$16.00 per share. Assuming the company prices at the mid-point of expectations, Tidewater will issue 8,987,375 shares assuming the over-allotment is exercised in full. 

The prospectus still does not list the total number of shares out standing but it does say that post-offering, Tidewater Midstream (TSX:TWM) will own 71.83% of shares at the mid-point and assuming the over-allotment is exercised in full. Based on this, we can guesstimate that there will be approximately 32M shares upon closing. 

This would value the company at $464M and given it a EV/EBITDA  11.6 based on expected $40M EBITDA run rate and TTM revenue of 4.7M. The 4.7M in revenue was grabbed from the selected financial information and results of operations of the acquired assets and is unclear if this will represent that standard.

If one compares to recent IPO Anaergia - it is now trading at an EV/EBITDA ratio of 282 and P/S ratio of 8.81 - which are wildly different valuations. 

We'll have to wait until the final prospectus to see if our estimates on total number of shares are accurate. 

July 23, 2021 - Earlier in the week, Tidewater Renewables filed its preliminary prospectus as it seeks to list on the TSX Index under the symbol "LCFS".  While the terms of the offering have yet to be announced, the company aims to raise $150 million. 

Tidewater Renewables was formed to become a multi-faceted, energy transition company. The company intends to focus on the production of low carbon fuels, including renewable diesel, renewable hydrogen, renewable natural gas, as well as carbon capture. For a detailed understanding of each type of these segments, we strongly recommend you read the company's prospectus. On pages 41-51, the company explains each of these segments in detail. It is not too detailed, but is worth a read by all those looking to invest in the space - not necessarily only those looking to get into the IPO. 

Proceeds from the offering will be used to help acquire operating assets from Tidewater Midstream and Infrastructure (TSX: TWM) for aggregate consideration of approximately $585 million. 

The assets will provide an initial platform for the renewable diesel, renewable hydrogen, and renewable natural gas business units. The assets will initially operate primarily under long-term take-or-pay contracts exclusively with Tidewater Midstream and expects them to generate ~ $40M in annual EBITDA run rate. 

Think of this company's agreement with TWM similar to that of TransAlta Renewables (TSX:RNW) and TransAlta (TSX:TA) whereby TransAlta's renewable assets were "dropped down" to TransAlta Renewables when it was first launched back in 2013. 

Post offering, growth projects are expected to come online between 2021 and 2023 and provide upwards of $101-106M of EBITDA by 2023. The company expects to target new projects at a capital cost of approximately 4-8x EBITDA run rate.

Here is a list of expected growth projects:

The timing of Tidewater's offering is interesting. It comes at a time where the renewable industry is down significantly from highs, but seem to have found a bottom. This could be a good sign as the demand for renewable fuels is poised to grow significantly over the coming years. 

Supported by new regulations and consumer demands, renewable diesel, natural gas and hydrogen are all expected to be key in reducing carbon footprint. Governments worldwide are putting forward clean energy mandates and supporting programs that support and incentivize renewable fuel production. 

What sets Tidewater apart from most of its peers, is that the company is focused on fuel production. We are not talking about another power generator, or a company that is focused on emerging technologies. The company is laser focused on renewable fuel production. 

The company' Renewable Diesel & Hydrogen complex (listed above) is expected to be the first of its kind in Canada. This stand-alone plant will focus on 100% renewable feedstock and believes that it can meet BC's expected demand for renewable diesel at a commercial scale.

Since no additional details of the offering have been released, we cannot comment on valuation or the attractiveness of the IPO.

What we can say, is that after stumbling out of the gate, recent IPO Anaergia (TSX:ANRG) has performed quite well in recent weeks. Overall, we'd expect to see strong demand for the IPO given its strong relationship with Tidewater and clear visibility into its robust pipeline of growth projects.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.