Eqtec (LSE: EQT) is an ESG penny stock that I think could thrive as we transition to a more sustainable future. The stock has fallen recently, but is still up an explosive 140% over one year.
Has this recent share price weakness presented me with a buying opportunity?
Eqtec’s business
The firm offers gasification technology solutions for the waste-to-energy sector, which has the potential to reduce waste and meet the growing demand for clean energy.
Gasification is a process that replaces traditional incineration. Instead of burning, gasification vaporises waste almost instantly into a gas. This prevents the creation of smoke and exhaust gases, instead producing a ‘synthesis gas ‘(syngas). Now, syngas can be used for fuel or converted into other forms of energy.
Gasification may then have an important role to play as we move away from fossil fuels. It also helps by optimising waste management and reducing the need for landfill sites.
Eqtec’s Advanced Gasification Technology is patented. There’s one fully operational gasification plant in Movialsa, Spain, of 5.9 MWe (megawatts electric). There are another nine projects in development or construction.
Company financials
That’s all very well, but the company only generated £2.2m in revenue over 12 months to December 2020. Yet this is forecast to grow to an impressive £15.6m in 2021. However next year, revenue is forecast to grow again, by a huge 274%, to £58.3m. Growth like this might be hard to achieve, though management sounded confident in the interim results back in September.
The company has been loss-making up to now. After a recent equity raise, there should be enough cash on the balance sheet to see it through to profitability. The risk is that if growth does not continue, and the company needs to raise cash again, then shareholders may be diluted further.
Institutional backing
Another good sign is the institutional backing Eqtec has from Amati Global Investors. Amati is a specialist fund management business focusing on small and mid-sized companies. The fund managers say it’s the only company they’ve found that has provided commercial scale gasification with 90% up time for more than six years. The executive team and board members of Eqtec also own shares, which I think shows confidence in the business.
Time to buy?
I think this is a potentially exciting penny stock with huge growth potential in the ESG space. Amati Global Investors speak highly about the technology, and forecasts for revenue this year and next are impressive.
However, I see a lot of execution risk in the development and construction of the future gasification plants. With only one in operation today, there’s a lot depending on the success of these developments. Any delay could seriously impact growth forecasts.
For now, I’m happy placing the stock on my watchlist and seeing how these projects develop. I might miss out on some of the upside, but I think it will improve my risk/reward ratio if I wait a little longer before buying.
Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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