Gevo Inc. – Lossmaking entity amid Covid-19 challenges.

Gevo Inc. (NASDAQ: GEVO) is engaged in renewable chemicals and advanced biofuels. It transforms carbon and renewable energy into energy-dense liquid hydrocarbons.

On 17 March 2021, Gevo expects to report its Q4 FY20 trading update.

Investment Rationale – Avoid at USD 7.29

• From a technical standpoint, 20-day SMA (11.03) is not supporting an upside potential and appears unfavourable.
• Gevo has been incurring net losses since the inception.
• Gevo’s growth prospects and operations are dependent upon external funding in terms of public or private offerings and debt financing.
• Profitability is dependent upon the development and commercialisation of product and product candidates.

Risk Assessments

• The operational performance is exposed to foreign exchange rates and interest rates volatility.
• The Covid-19 disruption can also harm the supply chain and customer demand.
• Volatility in the financial markets could also impact the Company’s ability to raise external funds.

Recent News

24 February 2021: Gevo signed a strategic agreement with HCS Group GmbH to build a renewable hydrocarbon facility.

Q3 FY20 Quarterly Update for the period ended 30 September 2020 (as on 12 November 2020)

 (Source: Company Website)

• During 9M FY20, the Company issued 1,343,121 shares for total proceeds of US$2.2 million.
• As of 30 September 2020, cash, and cash equivalents totalled US$80.6 million.
• Revenue declined significantly in 9M FY20 with the termination of ethanol and distiller's grains production.
• Due to the decrease in personnel and consulting expenses, R&D expenses decreased by US$0.9 million during the Q3 FY20.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

During FY20, the Company suspended its production at the Luverne Facility due to Covid-19, which substantially impacted the revenues. Moreover, the Company has been incurring losses since inception and operations are majorly financed by multiple sales of equity and debt securities. It expects to incur net losses in future until it can commercialise its product candidates. Furthermore, the Covid-19 pandemic has materially disrupted its own business and created difficulty in satisfying regulatory obligations. Stock 52 week High and Low were USD 15.57 and USD 0.46, respectively.

Based on uncertain economic conditions and subdued demand, we have given an “Avoid” recommendation on Gevo, Inc. at the closing market price of USD 7.29 (as on 8 March 2021), while we look forward to reviewing the commercialisation of product candidates.

Grid Dynamics Holdings, Inc. – Covid-19 pandemic materially impacted profitability.

Grid Dynamics Holdings, Inc. (NASDAQ: GDYN) provides enterprise level digital transformation services that span early prototypes, strategy consulting, and enterprise scale delivery. It serves Fortune 1000 corporations and having engineering delivery centers throughout the US, eastern and central Europe.

Investment Rationale – Expensive at USD 14.43

• From a technical standpoint, 20-day SMA (14.91) is not supporting an upside potential.
• The profitability margins of the Company are in negative zone, whereas the industry median reflecting a decent positive figure.
• The outlook for net income is still gloomy.
• The economic downturn continued to impact the trading conditions and results of operations.

Risk Assessments

• The Company has short operating history which makes it difficult to evaluate prospects.
• A large proportion of revenue is dependent upon on a limited number of clients. Therefore, any decrease in demand for outsources services can significantly impact the revenue streams.
• It faces intense competition while the Company is exposed to a rapid change in technology.

Recent News

4 February 2021: In partnership with Amazon Web Services, GDYN launched an advanced Analytical Data Platform solution, which will strengthen the Company’s capabilities.

Q4 FY20 Update for the quarter ended 31 December 2020 (as on 4 March 2021)

 (Source: Company Website)

• During Q4 FY20, both revenue and gross profit declined year-on-year, while the Company reported a net loss.
• The non-retail vertical contributed 74% of revenues in Q4 FY20.
• As of 31 December 2020, cash and cash equivalents totalled US$112.70 million, as compared to US$42.20 million as of December 31, 2019. The liquidity was primarily bolstered by the merger with ChaSerg Technology Acquisition Corp.
• As of 31 December 2020, the total headcount increased to 1,894 from 1,430 employees as of 31 December 2019.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

For Q1 FY21, Gris Dynamics Holdings expects to report revenue in the range of US$35 million to US$36.5 million, including US$5.5 million contribution from Daxx. Similarly, adjusted EBITDA is expected to fall between US$2.4 million to US$3.4 million. The revenue for FY21 is projected to be at least US$156 million. However, it is noteworthy that the Company reported net losses in FY20 and still not able to project the figure for net income in FY21 due to uncertainties. Moreover, the stock price appears to be overstretched amid macroeconomic uncertainties. Therefore, it is rational to avoid any fresh trade at the current position. Stock 52 week High and Low were USD 16.06 and USD 4.61, respectively.

Based on the gloomy outlook and uncertainty regarding profitability, we have given an “Expensive” recommendation on Grid Dynamics Holdings, Inc. at the closing market price of USD 14.43 (as on 8 March 2021), while we look forward to reviewing the demand recovery in Q1 FY21.   

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

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