Taronis Technologies (formerly MagneGas) has announced its preliminary sales figures for January. In addition, it has acquired an unnamed industrial gas services business based in East Texas for $1.5m, payable in cash. The business adds more than $1m of high-margin service revenues annually and has the potential to cut around $50k of operating expenses each month from the existing operations in East Texas and Louisiana.
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Taronis Technologies |
Bolt-on acquisition to improve margins |
Acquisition |
Alternative energy |
21 February 2019 |
Share price performance
Business description
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Taronis Technologies is a research client of Edison Investment Research Limited |
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Taronis Technologies (formerly MagneGas) has announced its preliminary sales figures for January. In addition, it has acquired an unnamed industrial gas services business based in East Texas for $1.5m, payable in cash. The business adds more than $1m of high-margin service revenues annually and has the potential to cut around $50k of operating expenses each month from the existing operations in East Texas and Louisiana.
Year end |
Revenue (US$m) |
EBITDA* |
PBT* |
EPS |
DPS |
EV/Sales |
12/16 |
3.6 |
(9.6) |
(10.3) |
(620.5)** |
0.0 |
4.5 |
12/17 |
3.7 |
(10.3) |
(11.0) |
(306.2)** |
0.0 |
4.3 |
12/18e |
10.0 |
(11.5) |
(13.7) |
(4.29)** |
0.0 |
1.6 |
12/19e |
19.6 |
(4.8) |
(6.5) |
(0.3) |
0.0 |
0.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Adjusted for reverse share splits.
Reduction in FY19 losses expected
The acquired business provides high-margin infrastructure test and certification services to a wide range of industrial gas distributors in East Texas and Louisiana, including Taronis, which has nine distribution depots in the area. We raise our FY19 revenue estimate by $0.8m to $19.6m. In addition to the profit generated from providing services to other industrial gas distributors, Taronis will potentially save $50k each month that is currently paid out for these services. We reduce both our FY19 EBITDA and PBT losses by $0.8m to $4.8m and $6.5m respectively. The acquisition emphasises management’s commitment to improving the profitability of the existing distribution platform. Taronis intends to replicate the new service offer across its operations in California and Florida, increasing both revenue and margin in these geographies as well.
February placing funds transaction
The transaction was funded using some of the $13.5m (gross) from the fund-raising announced earlier this month. This involves a placing of 10.8m new shares at $1.25/share, together with warrants to purchase up to 8.1m new shares, also exercisable at $1.25/share. While this has had a highly dilutive impact, management notes that the group is now well funded for the foreseeable future.
Valuation: Trading at a discount to peers
Taronis’s shares are trading at a substantial discount to the EV/Sales mean of our sample of suppliers of industrial gases for 2019 (0.8x vs 3.0x). We see scope for share price appreciation on positive newsflow regarding cash burn, water decontamination commercialisation and European expansion.
Exhibit 1: Financial summary
Accounts: GAAP, Year-end: December, US$000s |
|
2016 |
2017 |
2018e |
2019e |
|
INCOME STATEMENT |
|
|
|
|
|
|
Total revenues |
|
|
3,552 |
3,719 |
9,951 |
19,608 |
Cost of sales |
|
|
(2,018) |
(2,217) |
(6,380) |
(9,918) |
Gross profit |
|
|
1,534 |
1,503 |
3,571 |
9,690 |
SG&A (expenses) |
|
|
(10,479) |
(11,664) |
(15,053) |
(14,099) |
R&D costs |
|
|
(679) |
(172) |
(12) |
(360) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
(1,856) |
50 |
0 |
0 |
|
Depreciation and amortisation |
|
|
(651) |
(673) |
(1,317) |
(1,680) |
Reported EBIT |
|
|
(12,130) |
(10,956) |
(12,811) |
(6,448) |
Finance income/(expense) |
|
|
(52) |
(15) |
(895) |
(54) |
Other income/(expense) |
|
|
50 |
(2) |
0 |
0 |
Exceptionals and adjustments |
|
(5,338) |
(52) |
0 |
0 |
|
Reported PBT |
|
|
(17,470) |
(11,024) |
(13,706) |
(6,503) |
Income tax expense (includes exceptionals) |
|
|
0 |
(4,974) |
0 |
0 |
Reported net income |
|
|
(17,470) |
(15,999) |
(13,706) |
(6,503) |
Basic average number of shares, m* |
|
|
0.0 |
0.0 |
3 |
20 |
Basic EPS* ($) |
|
|
(52.74) |
(22.22) |
(4.3) |
(0.3) |
Adjusted EBITDA |
|
|
(9,623) |
(10,333) |
(11,494) |
(4,768) |
Adjusted EBIT |
|
|
(10,274) |
(11,006) |
(12,811) |
(6,448) |
Adjusted PBT |
|
|
(10,276) |
(11,022) |
(13,706) |
(6,503) |
Adjusted EPS* ($) |
|
|
(620.45) |
(306.21) |
(4.29) |
(0.32) |
Adjusted diluted EPS* ($) |
|
|
(620.45) |
(306.21) |
(4.29) |
(0.32) |
BALANCE SHEET |
|
|
|
|
|
|
Property, plant and equipment |
|
|
6,403 |
6,865 |
9,961 |
10,337 |
Goodwill |
|
|
2,109 |
2,109 |
3,359 |
4,859 |
Intangible assets |
|
|
437 |
412 |
2,366 |
2,321 |
Other non-current assets |
|
|
27 |
352 |
352 |
352 |
Total non-current assets |
|
|
8,975 |
9,739 |
16,038 |
17,868 |
Cash and equivalents |
|
|
1,616 |
587 |
10,759 |
16,712 |
Inventories |
|
|
1,616 |
739 |
1,908 |
5,186 |
Trade and other receivables |
|
|
443 |
390 |
1,908 |
2,149 |
Other current assets |
|
|
226 |
198 |
198 |
198 |
Total current assets |
|
|
3,901 |
1,913 |
14,774 |
24,244 |
Non-current loans and borrowings |
|
|
620 |
584 |
556 |
529 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
Total non-current liabilities |
|
|
620 |
584 |
556 |
529 |
Trade and other payables |
|
|
416 |
1,717 |
2,454 |
2,955 |
Current loans and borrowings |
|
|
9 |
579 |
27 |
27 |
Other current liabilities |
|
|
8,002 |
954 |
772 |
772 |
Total current liabilities |
|
|
8,428 |
3,250 |
3,253 |
3,754 |
Equity attributable to company |
|
|
3,829 |
7,819 |
27,003 |
37,830 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
Profit before tax |
|
|
(17,470) |
(11,024) |
(13,706) |
(6,503) |
Net finance expenses |
|
|
0 |
0 |
895 |
54 |
Depreciation and amortisation |
|
|
651 |
673 |
1,317 |
1,680 |
Share based payments |
|
|
347 |
425 |
330 |
330 |
Other adjustments |
|
|
8,515 |
3,024 |
1,955 |
0 |
Movements in working capital |
|
|
(682) |
2,114 |
49 |
(517) |
Interest paid / received |
|
|
0 |
0 |
(895) |
(54) |
Income taxes paid |
|
|
0 |
0 |
0 |
0 |
Cash from operations (CFO) |
|
|
(8,640) |
(4,788) |
(10,055) |
(5,010) |
Capex |
|
|
(1,425) |
(129) |
(1,510) |
(2,010) |
Acquisitions & disposals net |
|
|
0 |
(325) |
(8,107) |
(4,000) |
Other investing activities |
|
|
(55) |
(0) |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(1,480) |
(454) |
(9,617) |
(6,010) |
Net proceeds from issue of shares |
|
|
6,422 |
5,008 |
30,423 |
17,000 |
Movements in debt |
|
|
0 |
0 |
(552) |
0 |
Other financing activities |
|
|
(5) |
(795) |
(27) |
(27) |
Cash from financing activities (CFF) |
|
|
6,416 |
4,213 |
29,844 |
16,973 |
Increase/(decrease) in cash and equivalents |
|
|
(3,703) |
(1,030) |
10,172 |
5,953 |
Cash and equivalents at end of period |
|
|
1,616 |
587 |
10,759 |
16,712 |
Net (debt) cash |
|
|
987 |
(576) |
10,175 |
16,155 |
Source: Company accounts, Edison Investment Research. Note: *Adjusted for reverse share splits.
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|
Research: Investment Companies
Seneca Global Income & Growth Trust (SIGT) is a multi-asset, value investor, aiming to generate an average total return of at least CPI +6% pa (with low volatility) over the course of a typical investment cycle, while growing its dividend in real terms. In anticipation of a global recession in 2021, preceded in 2020 by pronounced stock market weakness, SIGT’s managers are continuing to reduce the trust’s equity exposure. Two new investments have recently been in specialist assets, a heterogeneous asset class, which diversifies the trust’s revenue stream and offers the potential for enhanced total returns and lower portfolio volatility. SIGT has a progressive dividend policy; its annual distribution has compounded by c 4% pa over the last five years, and the trust currently offers a prospective dividend yield of 3.9%.