Source: ClearBlue Markets, Raymond James Ltd.
Carbon Streaming (NETZ-NEO, Strong Buy, $15.50 Price Target).
We maintain our Strong Buy rating on Carbon Streaming—a function of thecompany’s first mover status in the high growth carbon o-set industry, $1.0 bln pipeline of investment opportunities, our expectation of risingcarbon credit prices, and material upcoming catalysts. While the temporary pause of carbon credits in Indonesia is a source of concern, we believethe share price reaction to this issue, exacerbated by challenging market sentiment, is overdone. Carbon Streaming has recently announced twonew streaming investments including a $20 mln investment in a cookstove/water purification project across five countries in Africa, as well as a$1.35 mln investment in a biochar project in the US. Announced last week, the investment in clean cookstoves and water purification in the Africancountries of Malawi, Mozambique, Tanzania, Uganda, and Zambia, has a 15-yearterm over which NETZ anticipates 50 mln credits will be generatedwith the company receiving its typical proportion of project revenues (historically ~10-20%). While the pace of Carbon Streaming’s investmentshas progressed somewhat more slowly than anticipated, we are encouraged by these recent announcements and note NETZ maintains 4+ projectsin advanced development (suggesting additional announcements may be imminent) and another $1.0 bln worth of investments in its longer-termpipeline.
Base Carbon (BCBN-NEO, Strong, Buy, $2.00 Price Target).
Beyond our expectation of long term appreciation of carbon credits as well as robustindustry-wide growth, our Strong Buy rating on Base is underpinned by the company’s team of seasoned carbon industry veterans and capitalallocators, a significant $400+ mln pipeline of quality, high-return carbon o-set investments and a business model that leverages Base’s deeprelationships across the carbon credit value chain. While volatile market conditions have disproportionately weighed on earlier stage, smaller capnames, we stress that we have not seen any meaningful change orimpairmentin Base’s ability to source and sell carbon credits consistent with thestrategy outlined at the time of the company’s IPO. As discussed earlier in this note, voluntary carbon o-set pricing in bilateral negotiations hasheld relatively firm when compared to benchmark futures contracts. At the same time, we believe challenging market sentiment has sent sharesof BCBN into no-brainer territory. In fact, we highlight that as of yesterday’s close, BCBN’s market cap of ~C$65 mln is only modestly more than thecompany’s balance of cash and prepaid expenses which currently sits at C$56.5 mln (US$43.8 mln). Viewed another way, this implies an EV of just$8.5 mln which we believe is less than the NAV associated with the US$3.45 mln the company has deployed in its Rwanda cookstove carbon o-setproject to date. Accordingly, we consider current levels to represent exceptional value and rea-irm our Strong Buy rating.