analysts’ ideas of the week – up and coming wood pellet ......canada is one of the largest...

Week of April 13, 2015

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Analysts’ Ideas of the Week – Up and coming wood pellet producer www.researchfrc.com

Sid Rajeev, B.Tech, MBA, CFA Head of Research Up and Coming Wood Pellet Producer Today, I would like to introduce our readers to an up and coming wood pellet producer, Viridis Energy Inc. (TSXV: VRD). Wood pellets are used for heating and power generation. The demand for wood pellets has increased significantly over the past decade. Wood pellets are now one of the fastest growing sources of renewable energy. Canada is one of the largest global exporters of wood pellets, and Europe is the largest consumer. The global demand is expected to increase from 23 million tons in 2014, to 50 million tons in 2024, which is an 8% CAGR. The following chart shows demand forecasts through 2020.

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Source: Wood Pellet Association of Canada

Viridis Energy is a manufacturer and distributor of wood pellets. The company owns two production facilities - one in British Columbia (BC), and the other in Nova Scotia (NS). With a total production capacity of 180,000 tonnes, the company is one of the top five wood pellet producers, by capacity, in Canada. Their primary customers are power generation companies in Europe, and residential customers in the Northeastern U.S. for heating. Viridis also operates a wood pellet brokerage business which is currently trading 120,000 tonnes a year of wood pellets. The company reported $28.21 million in revenues in 2014. Management’s revenue forecast for 2015 is $36 million. The plant in NS is yet to break-even, and therefore, the company has yet to achieve profitability. We expect EBITDA to turn positive this year. The wood pellet industry is highly poised for consolidation with multiple M&A activities in the recent past. We believe Viridis has built a strong platform to grow organically, and through acquisitions, and position itself as a good acquisition target for larger players. We will be initiating coverage on VRD shortly. Please visit our website for a copy of the full report.




Daniel Iwata, BA, Dip. Fin. Mgmt. Equity Research Associate Input Capital Q4 Operations Update Input Capital (TSX-V: INP) released their Q4-FY2015 operations update last week. The company reported continued strength in deployment of capital into streaming contracts. However, their recognition of revenues continues to be delayed. The company’s share price reached an all-time high of $3.45 in early April, but following the operations update, has declined into the $3.00 range. For the fourth quarter ended March 31, Input reported they deployed $20.2 million into 35 canola streams. This continues on their strong deployment of $16.9 million in Q3 of FY2015, and is a significant increase over the $11.9 million deployed last year same period. Q4 and Q1 are typically the strongest quarters for deployment of capital for Input. Input had $52.6 million in cash at the end of Q3, and we feel that Input is making good progress deploying these funds. The 35 streaming contracts in Q4 bring the total number of streaming contracts to 68. We feel the rising number of streams is a good indication that more farmers are accepting canola streams as a way to finance. Input is now expected to receive 50,000 base canola tonnes in 2016, 2017 and 2018. We feel that management remains upbeat on deployment and their streaming contract pipeline, and expect a solid Q1-FY2016 of deployment. In Q4-FY2015, Input sold 7,269 tonnes of canola at an average price of $459 for streaming revenues of $3.3 million. We estimated that 38,438 tonnes of canola were due to Input in this harvest season at $440 per tonne. Last quarter, Input received 8,182 tonnes from canola streams. Management noted in the update that approximately 11,500 tonnes would be delayed into next year due to rail and system delays. Another 9,400 tonnes would be scheduled into future crop years due to the poor crops in Eastern Saskatchewan. Management has stated they are revising g their current canola marketing program to make canola deliveries more predictable. Input will release their audited annual results when they are finalized and filed. Last year, they were released May 27. We will release an in depth update following the release of the year end financials. We currently have the fair value per share of Input at $3.33.




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analysts’ ideas of the week – up and coming wood pellet ......canada is one of the largest...

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