BQE: Strong Q2; Recurring Segment Grows 79% YoY & 43% QoQ
What you need to know:• BQE reported Q2 financial results that beat our expectations on revenue and were in line on EBITDA. The quarter was once again led by the recurring operations segment which grew 79% YoY and 43% QoQ.
• Technical services revenue was soft again, but management expects a rebound in H2 as larger projects have been initiated in Q3.
• BQE’s China JVs also posted excellent results, including a 68% YoY increase in revenue and 177% YoY increase in JV income.
BQE Water (BQE:TSXV, BTQNF:OTC) reported Q2 financial results yesterday after market close that beat our estimates on revenue and were in line on EBITDA. The highlight of the quarter was the 79% YoY increase in recurring operations revenue due to new plants coming online. BQE remains one of our highest conviction names at the moment because of the emergence of this segment. Technical services were softer than expected (similar to Q1), but management expects a rebound in H2. We recently published a management interview with CEO David Kratochvil and Chairman Peter Gleeson, that reiterates our investment thesis, watch it here. We are maintaining our BUY rating and increasing our target price to $77.00/share based on 11.5x 2025E EBITDA (previously 11x).
Key Highlights
• Prop. revenue came in at $6.1M (+5% YoY) vs. our estimate of $5.7M. This was comprised of operations services revenue of $2.6M (+79% YoY, 42% of revenue), technical services revenue of $0.9M (-69% YoY), and BQE’s share of JV revenue of $2.7M (+68% YoY). The operations segment was driven by U.S. selenium plants that posted $1.6M compared to $459K in Q2 last year.
• Gross margin of 47% vs. our expectation of 48% and 48% in Q2 last year (note that this is reported as operating margin before depreciation).
• Adjusted EBITDA was $1.34M vs. our estimate of $1.4M and $1.5M in Q2/23. This equates to a 22% EBITDA margin, largely improving QoQ.
• BQE’s share of JV net income was $1.1M compared to our estimate of $0.4M and $0.4M last year. This was led by higher tonnages recovered and increased copper prices, compared to last year which had weather issues.
• Net income of $0.6M vs. our estimate of $1.1M and $0.6M in Q2/23.
• BQE ended the quarter with $7.8M in cash and $2.0M in debt.
BQE Water is engaged in the acquisition and development of processes to treat metal-laden, sulphate-rich waste water streams for acid neutralization and metal recovery. The principal operations of Co. are to build process plants and earn revenues from recovered metals, treatment fees, plant sales and process licenses.
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