EnWave Continues to Take the Global Food Market By Storm
EnWave Corporation (CA:ENW – $0.78 & US:NWVCF – $0.56 & GER:E4U – €0.49) offers industrial-scale dehydration technology for commercial applications in the food, cannabis, and pharmaceutical spaces. The Company’s Radiant Energy Vacuum (“REV™”) technology is becoming the new global dehydration standard. REV™ is faster and cheaper than freeze drying, and has better end product quality than both air drying and spray drying. However, having superior and cost efficient technology is just one half of the equation for a growth business. In order to become a true disruptor, a company must be able to demonstrate its superior solutions to potential clients and partners. EnWave has continued to have success in this aspect. Over the past month it has signed Technology Evaluation and License Option Agreements, or TELOAs, with three food-related companies in different niches and located on different continents. This adds to the impressive list of dozens of significant partnerships and clients it has previously attained.
In April, EnWave signed an agreement with a leading South American food company. Revenue for this trial period will be two-fold as EnWave will receive a monthly evaluation fee and the Food Company will lease a 10kW REV™ machine for use at its R&D facility. Any new snack, ingredient, grocery or food-service products created from use of REV™ will be distributed through the Food Company’s large-scale networks throughout South America. These products will be subject to a royalty fee payable to EnWave.
An agreement with NuWave Foods Inc. was signed earlier this month. It is a kitchen and bakery operation in Edmonton, Alberta. An exclusive option to license REV™ technology in Canada and the U.S. for shelf-stable donut and fritter products has been granted. NuWave will also rent a 10kW REV™ machine with the potential to purchase more REV™ machinery upon commercial production of viable products.
For this past week, EnWave signed a TELOA with a leading Eastern European fruit and vegetable company. The Company has plans to expand into the dried fruit market, making the REV™ technology ideal for this endeavor. This partner will pay a monthly evaluation fee for the term of the agreement. Any new snack, ingredient, grocery and food-service products developed from EnWave’s technology will be distributed through its wide network located in Eastern and Central Europe. This would result in a royalty payment and the purchase of large-scale REV™ machinery. As this partner already undertook testing at EnWave’s facility in Vancouver, the trial period may run briefly before additional equipment is purchased by the end of the year.
We really like EnWave’s business model since it can sell itself like a snowball effect. As the REV™ technology is proving to be an effective and cheap way to dehydrate food, companies in the highly competitive packaged foods industry have tremendous incentive to investigate it in order to gain a step ahead or keep up with their competition. This is particularly advantageous if they are able to sign an exclusive deal with EnWave for a particular region and type of food. Many industries can be reluctant to accept new technologies or processes. But companies in the food industry that take too long to adapt to change will be left behind.
Remote Machine Installation
In case you’re wondering how all the 10kW machines are going to be installed during COVID-19, the Company just recently remotely installed a 10kW REV™ machine for a partner in Iceland by guiding them with instruction videos on a remote video call. This remote installation necessitated by the outbreak may result in long-term cost savings. EnWave has been forced to develop and perfect a remote installation process which may be permanently kept in order to save on travel costs. The vast majority of EnWave’s existing clients and partners in the food and pharmaceutical spaces would be deemed essential services during these times. So we don’t expect any major disruptions from EnWave’s existing sources of revenue.
US Institutional Investor Taking Major Position
On April 29, over 4 million shares were traded. This was more than twenty times the normal daily volume on the TSX Venture. A new US institutional investor wanted to take a position, with Aurora Cannabis being a willing seller at $0.80 per share. This resulted in EnWave adding a solid institutional investor and eliminated Aurora’s overhang. While Aurora’s sell can be seen as a tough business decision in order to increase its own liquidity rather than a bearish attitude towards EnWave, the institution’s buy can only be interpreted in one way – a bullish view on the stock. Investors can look at that transaction and feel confident that any purchase that takes place below it is a likely winner.
COVID-19 and Sound Long-Term Business Decisions Lead to Buying Opportunities on EnWave
Despite EnWave’s continued progress, the stock is trading near 52-week lows on the TSX Venture, well off of the $2.67 high made last summer. We think that this represents an opportune time for investors to get in at a low price. ENW has pulled back due to anxiety over COVID-19’s impact on its business and its latest quarterly financials. The Company achieved solid revenue growth, but had negative operating profits due to increased costs.
No one likes to see the numbers go backwards, but as we have explained previously, these higher expenses were due to the decision to give NutraDried Foods more autonomy. This necessitated the hiring of additional personnel to manage the newly independent subsidiary. Management undertook this step only after careful consideration of the Company’s situation. So rather than a disturbing trend, we think that these increased costs and declining profitability seen in fiscal Q1 are part of a temporarily blip that will enable for improved financial performance down the road. Smallcaps Recommendation: BUY.