By T. Moore, CFA

OTCQB:PNDHF | TSXV:POND

READ THE FULL PNDHF RESEARCH REPORT

Initiating Coverage

We initiate coverage of Pond Technologies Holdings Inc (OTCQB:PNDHF) (TSXV:POND) with $0.80 USD price target for the US-listed shares and $1.00 CAD price target for the Canadian-listed shares.

Pond Technologies has a proprietary platform for high-scale growth of protein-rich algae while removing carbon dioxide (CO2) from the atmosphere. End products can be used in animal feed, aqua farming, nutraceuticals and possibly human diagnostics, therapeutics or biopharma later on.

Recent joint commercialization agreement with Livalta (AB Agri) for animal feed ingredients is very compelling. Multiple paths of revenue growth model going forward.

Pond Technologies is a carbon conversion technology company using its algae growth platform and already has revenues. Its unique integrated proprietary platform grows microalgae rapidly in large-scale amounts and in a cost-effective manner without requiring arable land. Its platform applies the natural power of algae strain to absorb carbon emissions waste from stack gas emitters. Then, the resultant algae protein stains can be transformed into valuable products or blends sold into supplements, animal feed, fish feed aquaculture, human nutraceuticals, beverages or food additives.

Pond's fully integrated systems and bioreactor tanks can generate the appropriate growth conditions using illumination, dosing and continuous harvesting of productive algae for paste, powder or dehydrated pellets.

The company has figured out not only how to capture the bad carbon dioxide emission from smokestacks, but also how to create multiple revenue streams from various strains of algae. Their algae growing platform eats up carbon dioxide emissions as a food to grow microalgae in closed tanks under fully-controlled computerized interior conditions. Then, harvested algae or extracted ingredients can be sold for revenues.

Vertical Integration, along with embedded optionality for future revenue streams, are important points highlighted throughout this report. Step-function progression is underway for the company's evolution into higher-margin and larger end markets.

Biomass cultivation & carbon sequestration play with several viable revenue paths to benefit from usage of its proprietary technology growth platform and know-how along with intellectual capital. Pollution abatement and algae usage end markets are an emerging theme with a long runway. Pond Technologies is teaming up to help big polluters (cement plants, steel manufacturing, power plants, gas producers, etc.) to help them reduce atmospheric contamination.

Double-beneficiary (emissions reduction + monetization of resultant byproduct) of algae creation in large scale, which can be processed and included into nutraceuticals, animal feed (cattle, etc.), fish feed (aquafarming & wild fisheries), cosmetics and soil amendments.

Revenue Streams from:

a) Sale of its patented proprietary equipment platform solution & engineering support to emitters

b) Sale of control systems with artificial intelligence and operating analytics technology

c) Licenses and Access Fees to its technology

d) Processing and blending of algae product into usable formats for many end markets

e) Royalty Streams (3-8% fee income stream to POND from commercialization)

Catalysts and Attractive Aspects are more detailed in our initiation report:

1. Breakthrough New Contract in September to Accelerate Topline Growth from Livalta (AB Agri)

2. Vertical Integration with Efficient Scalable Technology for Sustainable Algae Growth

3. Pipeline for Animal Feed for Livestock & Natural Gas is Early Innings with Active Projects

4. Double-Dipping Revenues Opportunities

5. Operating Leverage Inflection Point in 2023 for Breakeven EBITA

6. ESG Climate Stock to Become More Noticed

7. Methane Reduction in Cows, Diagnostic Reagents, Biofertilizers, Eco-Friendly Products

8. Reverse Stock Split Possibility in Late 2022

Valuation

We value Pond Technologies (OTCQB:PNDHF) (TSXV:POND) using a peer comparables valuation methodology based on EV/Sales for 2022 estimates.

We reach $0.80 USD stock price per share for PNDHF and $1.00 CAD for POND.V (TSX.V: POND) by applying the peer group average of 3.7x EV/Sales 2022 to our 2023 Sales forecast.

We apply 2023 as our base year because it being the first full year of commercialization terms with Livalta (AB Agri). We apply a 15% premium to it because of embedded optionality for the likelihood that one large deal ($3m revenues) is signed over the next 12 months. ESG stocks have also been commanding a premium valuation in recent years.

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