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dynaCERT Inc

Original-Research: dynaCERT Inc (von GBC AG): BUY

Original-Research: dynaCERT Inc - von GBC AG

Einstufung von GBC AG zu dynaCERT Inc

Unternehmen: dynaCERT Inc
ISIN: CA26780A1084

Anlass der Studie: Research Note
Empfehlung: BUY
Kursziel: 2.00 CAD
Kursziel auf Sicht von: 31.12.2020
Letzte Ratingänderung: -
Analyst: Julien Desrosiers, Matthias Greiffenberger

Q3 Results published. Important European partnership with MOSOLF won. Star investor and billionaire Eric Sprott acquires around 9% of dynaCERT; price target raised to CAD 2.00 (previously: CAD 1.90), rating: Buy

In the first nine months of 2019, revenues of CAD 0.21 million (previous year: CAD 0.07 million) were generated. The net result amounted to CAD -7.32 million (previous year: CAD -6.37 million).

Partnership with MOSOLF
With MOSOLF, the company was able to win another strategic partner. MOSOLF is one of the leading system service providers for the automotive industry in Europe. Its range of services includes logistics, technology and service solutions implemented with the help of a Europe-wide location network and a multimodal transport fleet. MOSOLF has 38 technical and logistics centers, 1,000 special vehicle transporters and achieved a turnover of € 417 million in 2018.

MOSOLF has already ordered 1,000 dynaCERT HydraGEN units for the year 2020 and will also serve the European market as a dealer. MOSOLF and its subsidiaries plan to become dealers and installers of HydraGEN products in Central Europe. As part of the cooperation, negotiations have also begun for a joint venture in which MOSOLF and dynaCERT will jointly develop, finance and certify the HydraGEN technology for the European passenger car market. We see extensive market potential in this cooperation. This could make the European roll-out even more dynamic.

As soon as the MOSOLF Group has installed the HydraGEN technology in its own vehicles and achieves better fuel efficiency than the competition, then the market rollout in Europe should accelerate significantly.

The close cooperation between dynaCERT and MOSOLF is also clearly demonstrated by the accession of Dr. Jörg MOSOLF (CEO of MOSOLF) to the Advisory Board of dynaCERT. In addition, Dr. Jörg MOSOLF is well connected in the German logistics industry, including being elected President of the German Transport Forum (DVF). This could lead to further important contacts for dynaCERT.

Furthermore, the dynaCERT technology was approved according to a formal risk assessment by TES (Total Equipment Services Inc.), enabling its use in underground mining in Canada. Here dynaCERT was again able to show that the technology meets high safety standards even under strict conditions, which increases the addressable market for dynaCERT.

In addition, the company was granted another US patent on September 3, 2019 (No. 10,400,687 - 'Management System and Method for Regulating the On-Demand Electrolytic Production of Hydrogen and Oxygen Gas for Injection in a Combustion Engine'). The patent relates to the Smart ECU system, which can reduce pollutant emissions by regulating the amount of gas and at the same time improve the performance of the combustion engine. We regard the patent as an important step to protect the market for dynaCERT in its growth phase from a possible competition.

Star investor and billionaire Eric Sprott joins the company In addition, Eric Sprott is now one of the major shareholders of dynaCERT. Billionaire Eric Sprott is one of Canada's best-known commodity investors, and his commitment to dynaCERT should have raised public awareness of the company.

Eric Sprott subscribed for shares with a total gross proceeds value of CAD 14.00 million. 28 million shares were issued at a price of 0.50 CAD. In addition, the investor received half a warrant per share. The strike price of the warrants is CAD 0.65 and can be exercised from 26th of November 2021. The warrants are linked to certain further conditions if the share price exceeds CAD 0.80 for an extended period of time.

As a result of this transaction, Eric Sprott now holds approximately 9.12% of the undiluted company, or 12.85% upon exercising of his warrants.

Our sales estimates are based on the assumption that the dynaCERT technology will be adopted by the market as quickly as previously aerodynamic side skirts. For our valuation, we have assumed a market penetration rate of 50% after seven years, which, in our opinion, is a conservative scenario. Since dynaCERT is protected by patents and the technology has very high entry barriers - not only through research and development, but also through the necessary certification - we expect that it will be extremely difficult for other companies to offer equivalent products in the short and medium term.

We assume that dynaCERT will achieve considerable sales increases in the coming years. By the end of 2019, the company is expected to have sold 740 units with total sales of CAD 4.62 million and a gross profit margin of 30%.

However, the sales forecast for the current year 2019 will not yet be sufficient to generate profits and we believe the loss will amount to CAD 16.67 million. This investment phase is based on extensive research and development activities and regulatory approval for emissions trading, which will be essential for the third phase of product development. Research and development expenditures are approximately CAD 5 million per year. We assume that this figure will gradually increase in the course of the product successes. In addition, the company is currently setting up a global sales network, which entails corresponding costs. With the finalization of a solid sales network, the corresponding expenses should also decrease.

The company has a production plant in Canada that can produce more than 12,000 units per month, when it reaches full capacity. This corresponds to an annual production of 144,000 units. At an average selling price of over 6,000 CAD, the plant could generate annual sales of around 850 million CAD at full capacity. We expect the company to open assembly plants in the next three years as a joint venture with local offices in Europe, Mexico and Asia. As these sites will only be assembly plants and external partners for product installation, the company should only need comparatively small investments to achieve the sales growth we forecast.

Since the company has already hired many of its key employees required for the next growth phase, it is not to be expected that personnel expenses will increase proportionally to sales. If successful, dynaCERT could reach the profit zone within the next three years and the net margins should increase significantly in the following years.

We also believe that, once the adoption rate for HydraGEN exceeds 30%, another important source of income will be added: carbon credits. With its second separate product in the final phase, dynaCERT should be in a position to introduce the emission allowance program within a few quarters and generate additional revenue.

As already mentioned, there is currently no known competitor on the market which could allow fuel savings and at the same time produce emission certificates. Within a few years, the revenue from emission certificates could exceed the revenue from the sale of HydraGEN equipment. This way it would make the sale of HydraGEN independent from the oil price. This carbon credit business could generate an annual turnover of CAD 500 to 1 billion in the future (depending on the CO2 price). However, we have not yet taken this potential source of income from emissions trading into account in our DCF model.

The company has successfully developed a number of products that can function as a stand-alone ecosystem for the transportation industry, including emission reduction, fuel efficiency and a fleet management solution. In addition, the customer will benefit from a stable source of revenue in the future through the emission certificate program. Each product alone is unique. In our opinion, dynaCERT is currently significantly undervalued and we raise the price target to CAD 2.00 (previously CAD 1.90). Against the background of the high upside potential, we give a Buy rating.

Die vollständige Analyse können Sie hier downloaden: http://www.more-ir.de/d/19705.pdf

Kontakt für Rückfragen
Jörg Grunwald
Vorstand
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR. Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,5b,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter: http://www.gbc-ag.de/de/Offenlegung
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Date and time of completion of this research: 03/12/2019 (13:45) Date and time of first distribution: 09/12/2019 (09:30) Target price valid until: max. 31/12/2020

-------------------übermittelt durch die EQS Group AG.-------------------

Für den Inhalt der Mitteilung bzw. Research ist alleine der Herausgeber bzw. Ersteller der Studie verantwortlich. Diese Meldung ist keine Anlageberatung oder Aufforderung zum Abschluss bestimmter Börsengeschäfte.

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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