Andreas Eriksson | 2022-09-29 10:00
Cancelled preference share issue
In the middle of the ongoing preference share issue, the board of Swedish Stirling decided to cancel the issue, citing market conditions. The issue was meant to finance the agreement with Glencore Merafe to provide a 10 MW energy conversion service based on PWR BLOKs to Lion Smelter in South Africa and as a consequence that deal now needs to be re-negotiated. Trying to sell the PWR BLOK, transferring technical and operational risk as well as financing to the buyer, is however a model that has already been tried, without any luck so far. But there are reasons to believe that the situation could be different this time.
Industrial case remains as clean energy remains a hot topic
As for the prospective customers, foremost Glencore, liquidity should not be an issue. Glencore, who was also an anchor investor in the planned preference share, reported a net income of USD 9.1b for 2021, while also setting aggressive environmental targets of a 50% total emissions reductions by 2035 and net zero by 2050. Therefore, there should be both environmental and economic incentives as well as financial muscles to invest in a technology that lowers both energy consumption and carbon emissions. These are also ambitions and demands that are not limited to companies in the South African ferrochrome industry. With that in mind, we remain optimistic about the technology and the chances for the investment case to materialise into firm system sale deals.
Elevated near-term risks
We no longer expect deliveries to Lion Smelter before year end, as any potential new agreements will likely take time, thus pushing first revenues further into the future. A valuation model based on 20% WACC indicates that today’s share price of SEK 6 reflect an expectation of a rollout amounting to 16 MW by 2026. For our base case we now forecast 2 MW sold in 2023 and a total of 22 MW installed by 2025, which hinges on firm sales deals singed by end H2’23 at the lastest. Using a combined target multiple and DCF (WACC 20%) approach, we now find support for a fair value range of SEK 9 – 12, and see a re-negotiated deal with Glencore, or other firm sales deals as the key triggers short-term. Should the company be able to reach agreements sooner rather than later, a rollout of the full 96 MW pipeline in South Africa by 2027 would instead imply a value of SEK 16-20 per share.
GENERAL DISCLAIMER AND COPYRIGHT
This commissioned research report is for informational purposes only and is to be considered marketing communication. This research does not constitute investment advice and is not a solicitation to buy shares. Information provided here or on Emergers' website emergers.se is not intended to be financial advice. This research shall not be construed as a recommendation or solicitation to invest in the companies described. Emergers cannot be held liable for either direct or indirect damages caused by decisions made on the basis of information in this analysis. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.
This material is not intended to be financial advice. This material has been commissioned by the Company in question and prepared and issued by Emergers, in consideration of a fee payable by the Company. Emergers charges a standard fee for the production and broad dissemination of a detailed note following by regular update notes. Fees are paid upfront in cash without recourse. Emergers may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.
Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained herein represent those of the research analyst at Emergers at the time of publication. The company has been given the opportunity to influence factual statements before publication, but forecasts, conclusions and valuation reasoning are Emergers’ own. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.
Exclusion of Liability: To the fullest extent allowed by law, Emergers shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained in this material.
No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Emergers’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in this material may not be eligible for sale in all jurisdictions or to certain categories of investors. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.
Investment in securities mentioned: Emergers has a restrictive policy relating to personal dealing and conflicts of interest. Emergers does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Emergers may have a position in any or related securities mentioned in this report, subject to Emergers' policies on personal dealing and conflicts of interest.
Copyright: Copyright 2021 Incirrata AB (Emergers)
This document is prepared and provided by Emergers for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.
This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.
Emergers relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Emergers does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.