Companies that are part of the renewable energy sector have the potential to deliver game-changing returns to long-term investors. A report from Allied Market Research estimates the global renewable energy market will expand from $882 billion in 2020 to $2 trillion by 2030, indicating annual growth rates of 8.4%.
Clean or renewable energy is generated from sources such as hydro, solar, and wind. The global shift towards clean energy solutions is expected to accelerate in the upcoming decade as countries continue to invest in this sector and fight climate change.
So, it makes sense to keep an eye on renewable energy companies trading on the TSX, given the decarbonization of global economies will attract $150 trillion in investments over 30 years. Right now, clean energy accounts for 20% of total electricity generated as renewable companies have quadrupled power generating capacity in the last 10 years.
One TSX stock that should be on your watchlist is Tidewater Renewables (TSX: LCFS), valued at a market cap of just $300 million.
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Is Tidewater stock a buy or a sell?
The core project of Tidewater includes its renewable diesel and hydrogen complex (HDRD). Here, the company utilizes renewable feedstocks to produce renewable diesel. The project also comprises a hydrogen plant that will produce 10 million cubic feet per day of hydrogen.
Tidewater is well poised to benefit from an early mover advantage and its co-location leads to attractive economics due to lower capital spending and operating costs. Moreover, the company’s renewable product yields should generate renewable credits in Canada and the United States.
In December 2022, Tidewater executed a renewable diesel offtake agreement with an investment-grade partner to sell 50% of HDRD’s production through 2024. It expects the HDRD complex to increase production in the second half of 2023 and end the year with an average utilization rate of 75%.
Last October, Tidewater also entered into a 20-year RNG offtake agreement with FortisBC Energy to sell 100% of the former’s production from its RNG facility in Alberta.
The company completed its first full year of operations in 2022 allowing it to end the year with a net income of $25.9 million, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $62.4 million, and distributable cash flow of $38 million. In Q4 2022, its adjusted EBITDA surged higher by 57% to $16.7 million.
What next for the TSX stock and investors?
Given its utilization rates, Tidewater estimates adjusted EBITDA to range between $50 million and $60 million in the second half of 2023. Once the HDRD complex operates at its design capacity, it should generate annualized EBITDA between $130 million and $155 million.
Analysts tracking the TSX stock forecast revenue to rise from $76 million in 2022 to $435 million in 2024. Comparatively, adjusted earnings are forecast to expand from $0.74 per share to $2.22 per share in this period.
So, LCFS stock is priced at 0.7 times 2024 sales and 3.8 times forward earnings, which is really cheap given its growth forecasts. Analysts tracking Tidewater Renewables remain bullish and expect shares to gain 97% in the next 12 months.
