Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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You should probably multiply overheads by 2 or 3 times to account for a round-the-clock operation rather than single shift to produce 55MW. Otherwise seems fair.
My calculations based on 55MW are as follows. I’d appreciate any comments/criticisms.
Michael Walters had the following comments which match my own understanding:
‘Assuming production of 20mw for 2021 and the base price of about Euros 1 per watt, Harrison projects that EBIT profits could reach £6m. In fact, there are opportunities for selling some product at Euros1.5 or more per watt.’
The company has about £2m of overhead cost. Therefore I think Paul Harrison’s £6m figure may be broadly £8m gross profit on panel sales and £2m of overheads.
Using 1 Euro/Watt, then at 55MW the £8m gross profit becomes £22m. Less the £2m overheads leaves £20m of EBIT.
Any increase in the average selling price above 1 Euro/Watt should largely fall straight through to the bottom line and have a leveraged impact on profits. They are selling via agents and distributors who I assume are paid based on a percentage of the sales price. In my latest calculations I have assumed that 30% of any additional sales price goes to the agents/distributors [happy to be corrected on this percentage if anyone has industry knowledge of what percentage agents are paid].
Therefore 70% of any increase in sales price will fall straight through to EBIT.
As Michael highlights in his quote above some products sell for Euro 1.5 or more per watt. I believe sales into the Marine market are even higher.
Using a 1.2 Euro average selling price and 55MW gives £27m EBIT. Using a 1.5 Euro average selling price gives £37m EBIT.
So what you are inferring then is that if profits on 55Mw are close to the current SP then we could assume PE of 10 (conservative) and the SP should 10 fold from here at least.
Absolutely agree – any requirement for increased production facilities would be hugely positive news.
I was actually thinking that they might need the extra capacity for their current solar panels. They’ve already identified a 2GW opportunity in just one vertical, in one geographical area alone. (This opportunity is drilling rigs in the Middle East according to Michael Walters).
From Michael Walters’ comments it’s clear he is talking to the company. Interestingly he said this about capacity:
‘Small wonder that there are already plans to enlarge capacity at the Milan plant, which has put the coronavirus pause behind it and is now in production. It can be enlarged from 20mw to perhaps 55mw. Then there is the 10mw factory in Portugal to come, and maybe two other new plants to follow, with perhaps the technology licensed out to another.’
I wonder if the ‘maybe two other new plants to follow’ idea came from a discussion with the company. He’s talking about factories owned by Verditek rather than licensed out.
At 55MW the numbers are fantastic, with profits being close to the current market cap depending on assumptions for average selling price. If they have enough orders to require additional factories then the forecast profits become ridiculous compared to the market cap.
If you mean funding the growth for graphene based production facility then funding for that would be positive and any dilution as a result would be positive.
The revenue which could be generated by such a product would far out way the dilutive value of funding.
Anyway. If we have free cash flow by the end of the year I will for go any dividend and understand if Verditek wish to invest back into the business for future growth projects such as this.
292m shares is really not a very high number and the market cap is still incredibly low. Some AIM shares have billions in issue so a rise of 1p is hard to justify as it can add 10 or £20m to an MCap.
Verditek are in a fantastic position and appear to be very considerate of shareholder value. This is only supported by the fact that the leadership have a significant interest in the business.
I agree. I don't think they will need any funds for working capital purposes.
The only reason they would raise is if they wanted to create a new production line/factory to increase their own capacity above 50MW.
The capex for the factory is already funded. Funding working capital wouldn’t necessarily need a share issue, it could be funded from a multitude of other sources such as their recent raise, bank facilities or even customer advance payments. Clearly funding the growth could be a risk. Hopefully they provide some insight in a future trading update.
I can't really see why they would need money now, seeing as they spent money on the factory set up for 50MW and they are just paying commission on sales to the extra staff. All the focus will be on Orders, and maybe some news on what they intend to do with the additional Portugal factory lines.
Well if there is any fund raise in the offing let's hope we shareholders have some involvement and not just those in the city institutions. A rights issue would be nice at the right level of course.