While the respirator business of Loudspring’s Eagle Filters has finally hit the market, the legacy high-performance turbine filter business stand on the brink of a scale-up, where a full rollout of Eagle Filters products in just the existing customer base would increase volumes 10-fold and produce massive savings in both money and CO2 emissions. In 2020 Eagle Filters reduced its customers’ CO2 emissions by approximately 150 000 tons offering a significant value opportunity in light of the surging emissions price.
Text: Andreas Eriksson | Date: 2021-06-29
Alongside the respirator business that Eagle Filters started in response to the surge in demand following Covid-19, Eagle also manufactures high performance air-filtration solutions used to increase efficiency in gas turbines. The filter itself keep the blades of the turbine clean, protect the turbine from degradation, thus making it function at optimal levels for longer periods of time. Despite its relatively small size Eagle Filters has customers on all continents, and show significant growth potential from current levels. This is largely due to Eagle’s premium air filtration products that can significantly increase the efficiency and reduce CO2 emissions of gas fired power plants.
– Using our high-performance gas turbine filters produces massive savings for the customers, which generally are large power utilities, by reducing maintenance and repairs. As a result, pay-back-times for the customers are short and translate into savings of several million euros per turbine as well as massive savings in consumption of natural resources and CO2 emissions, says Juha Kariluoto, CEO of Eagle Filters.
Significant value potential in reducing emissions
While natural gas is a fossil fuel, it generates significantly lower CO2 emissions than other fossil fuels. So how does Eagle see the future for its turbine filter business?
– About 20% of the world’s total energy production comes from natural gas, and gas turbines play a particularly important role when it comes to balancing and back up of the power system. Without it, we would not be able to absorb the inflow of renewable power in the system. Also, in future, the excess power production from renewables will be able to be stored in hydrogen which can then be used as fuel in gas turbines and produce electricity later in time, like at nighttime when the sun doesn’t shine, and wind doesn’t blow. So, we won’t be able to decommission gas turbines any time soon, but we can make them less harmful.
In 2020 Eagle Filters reduced its customers’ CO2 emissions by approximately 150 000 tons. The volume of CO2 emission reduction is important because that is where the climate impact lies. Emission reductions also have real financial value. In EU’s emission trading, CO2 reduction credits recently trade at around 55 EUR per ton, more than double compared to a year ago, and there are a growing number of voluntary emissions reduction schemes around the world. CO2 reductions offers lucrative possibilities for Eagle Filters to work with customers and partners to monetize these emission reductions, as they are clearly defined and very real.
Potential to accelerate path to dividend income for Loudspring shareholders
As of the full year 2020 report, Loudspring which is the mother company of Eagle with a 85% ownership, expected revenue from Eagle’s industrial products to be in the range of 2 450 000 EUR (low end), which would mean another year of flat growth, up to 4 500 000 EUR (high end), which would represent a near doubling in revenue. However, revenue and won bids for the gas turbine filter and respirator business combined amounted to 3 MEUR by the Q1 update in mid-April 2021, which supports the possibility of total sales in excess of 10 MEUR by 2022, or even by 2021. Assuming a 20% EBITDA-margin, in line with listed industry peers Donaldson Company and 3M, this would suggest a +2 MEUR EBITDA.
Loudspring is in a process of transforming itself into an industrial company around Eagle Filters who’s industrial business offers long term stability to revenues, which helps to de-risk Loudspring’s portfolio and accelerate the path to dividend income for Loudspring shareholders.
But despite the strong macro drivers for demand and good momentum coming into 2021, all has not been smooth sailing for the industrial filter business. During Q1’21, Eagle initiated in-house production of the industrial filters, but the production has experienced delays from planned schedule, causing an increased backlog of orders and an increase in the need for working capital. Last Friday Loudspring announced the sale of its 24% stake in ResQ Club with the intention to tighten its focus and investments around Eagle Filters. In the press release for the divestment, Loudspring states that the resources released from the ResQ Club investment will give shareholders significantly better return when deployed into Eagle Filters’ growth.
Now that Eagle has secured the required financing, there is a lot of work to be done. Eagle yet has a very modest market share of the roughly 10 000 turbines around the world that could use filters like the ones Eagle manufactures, meaning that there is ample room to grow only through increased market penetration.
– Looking only at our existing customer base, if each of our existing customers would introduce our high-performance filters in each of their gas turbines, this would mean a 10-fold growth for Eagle, so there is a clear path in front of us detailing how to materialize the potential, says Juha Kariluoto.