Andreas Eriksson | 2022-12-07 08:00
Bringing Glencore back to the tableAs a consequence of the canceled preference rights issue earlier in Q3, Swedish Stirling was more or less forced into finding a new, less capital intense strategy to shorten the way to positive cash flow. Now Swedish Stirling intends to sell the 10 MW worth of PWR BLOKs to Glencore, instead of its previous offering of an energy conversion service. To finance this, the company has announced a rights issue of SEK 200m of which SEK 160m is already guaranteed. The company has also obtained conversion undertakings of SEK 50m from KV4 convertible bond holders. Landing a first firm deal is now of highest importance, as the company now needs to validate product-market-fit also for other LOI-holders Samancor, Richard Bay Alloys as well as for a potential European market. But, considering Glencore’s past commitment to Swedish Stirling, being an anchor investor in the canceled preference rights isssue, we remain optimistic that the two parties will agree to a win-win-agreement in a not to distant future.
South African energy crisis underpins demandAlthough largely sheltered from Russia’s war in Ukraine, there is an ongoing energy crisis in South Africa, where the “load-shedding” (planned power loss) has gone from two hours per day, to eight hours in some parts of the country, simply because there’s not enough power generated. A reliable power supply is crucial for running energy intense business, such as a ferrochrome smelter. When also considering that 80% of the South African energy mix consists of old coal plants (that are not even partciluarly cheap anymore), this does not sit well with Glencore’s ambitious sustainability targets. We see plenty of incentives to invest in a technique like the PWR BLOK, that is both economical and environmentally friendly.
Gaining financial muscles to capitalize on new business modelThe terms and conditions of the upcoming rights issue have now been announced, and with a strike price of SEK 1.13, the rights issue will entail 176,5m new shares if fully subscribed, diluting non-participating shareholders by 58%. If we also include the conversion of KV4 at the same strike price of SEK 1,13, another 45m shares will be issued, leaving total share coount at 350 million shares post issue. While we make no revisions to our forecast, we find it likely that negotiations with Glencore and other customers will take some time and therefore continue to expect 2 MW worth of PWR BLOKs sold in 2023 and a ramp up to a total of 22 MW sold by 2025. All in all, this translates into a new fair value of SEK 3.2 – 4.3 per share (SEK 9 – 12), based on a combined target multiple and DCF approach. Now near-term focus is on Glencore, where we see progress on a firm deal as the primary trigger.
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 standard fees are SEK 240,000 pa 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.