Environmental protection at its best; Initiating with BUY
What stock would Greta Thunberg buy if she were a stock investor? Honestly – we don’t know! Wolftank however should clearly be on her short list, when investing at the stock market. Simply put, everything Wolftank does focuses on innovative solutions to protect the environment, such as air, soil or groundwater. With its three segments, Wolftank focuses on tank farm remediation, environmental protection services for contaminated soils and facilities as well as commissioning of LNG and hydrogen petrol station for heavy duty trucks.
Whilst clients typically are globally acting chemical companies and oil majors, the industry is characterized by high barriers to entry thanks to a highly regulated environment (e.g. health and safety regulations or customers certification processes), a fragmented competitive landscape and genuinely a niche market by nature. Here, Wolftank sticks out of being one of the largest player differentiating by offering a unique product offering, often protected by global patents and a long lasting track record, a prerequisite in an industry where failure can lead to disproportionate financial and reputational damages. Further, scale advantages and genuinely low capex requirements should allow for superior returns going forward as well as decent cash generation in order to act as an active consolidator in its industry.
A game changing acquisition where Wolftank has the option to acquire one of its largest competitor in a two-step process, neither have been fully reflected in our forecast, nor have capital markets correctly priced in the potential of this acquisition in our view. In essence, when exercising its purchase options, Wolftank could more than double its annual sales as early as 2021E. Coupled with massive structural growth (e.g. increasing environmental awareness / mushrooming LNG and hydrogen petrol station commissioning) and pent-up demand given that orders from the H1/20 lock down have been postponed into H2/20 and beyond, should lead to double digit CAGR growth in our forecast period (19-22E). Self-help measures should even lead to disproportionate earnings growth with EBITDA up 26% p.a. in the same period.
A single digit P/E (8x 2022E) and the prospect for further upgrade potential thus are all clear evidences that Wolftank should make it at least on Greta’s watchlist.