The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Agree about a placement being imminent - the CEO has been hammering the media rounds in the past fortnight with 3 or 4 interviews talking up the share price mismatch. I think the only way Uskmouth gets built though is through project finance and selling a stake of the equity to an infrastructure fund. At the current market cap there is no way they could raise the £180 million they need from equity alone and it would be terrible dilution for share holders. Simec would have to put in a lot of cash to to preserve their 49% holding and I cant see that happening at the moment given the pressures Covid has placed on their business.
Good point! I agree. The numbers will no doubt look horrendous on the surface. The turn around will only start when they get Uskmouth to financial close or Meygen wins a CfD. Either of these events would see massive value created which they could free up by selling off some project equity. That would be a landmark moment for the company and hopefully reward the patience of their investors.
That wasnt news as such - the consultation was published in March I think. Tim also tried to talk up 'discussions with government' about CfDs when they missed out in 2017. Agree that is a positive sign but until the pot structure change actually gets made and Atlantis manage to win a contract, Im not counting any chickens. I think there will be stronger than expected competition from ACT generators who will likely be in the same pot. I do still have high hopes for tidal long-term. I see it as something on a par with geothermal - a really helpful niche technology for parts of the world where it makes sense and its time will come sooner or later. For the next 12 months though it really is all about Uksmouth for me. That one alone as an enterprise value of £100m+ and would justify a SP multiples higher than where we are now. Meygen would do the same if they had a reliable route to market but that still feels a few years off and relies on a lot of external factors going their way.
My take on the recent price rise is CEO's comment on fuel testing results being due in a matter of days. He also told us the price was set for the mother of all corrections a couple of years ago and that failed to materialise. The fuel test was the event I had pencilled in as the trigger for increasing my stake. If the results are positive then the odds for the conversion coming off look pretty good to me. The SP has been at bargain prices for a long time but that was understandable given the absence of a route to market for tidal and unproven nature of the subcoal fuel. I do really like this company though. I think they have fantastic deal making nouse and would fancy them to be able to leverage the Uksmouth model globally if it comes off. I thought the deal structure between Liberty Steel and N+P group was genius - win, win, win for all three parties.
Promising - up two sessions in a row based on zero news. If this is driven by something tangible my guess is the fuel testing for Uksmouth has gone well and things look on track for financial close. If that happens the company is instantly transformed and will be well positioned to survive until the tidal business gets off the ground. The only other thing as big would be policy change from UK government.
Hope you are right! I think so too but it all depends on reaching financial close at Uksmouth. I'm sceptical about there being any viable route to market for tidal in the UK but will be watching the budget closely for sources of hope on that front. France seems genuinely viable but they need another 2-3 years to develop that opportunity. Success with Uksmouth will buy them the time they need.
Who knows. I totally agree though. The tidal tech is amazing and was what originally captured my imagination when I first invested in these guys. My feeling is that the company does have good links/buy in from the Scottish govt but zilch with Westminster. My main fear is that their Uksmouth model isnt particularly future orientated or clean and could come under attack from green energy advocates. Other ACTs like Power House Energy (whose shares have recently sky rocketed) offer a much cleaner solution for non-recyclable waste compared with Uksmouth which is essentially just a waste incinerator. I worry that any govt money will go to companies like Powerhouse via CfDs. I like the company and think they have some resilient and creative management with a knack for deal making but there is still a lot of risk around.
This year all hinges on Uksmouth and whether Equitix are still in play. If we get positive news on the EPC testing by April and the Equitix deal comes off they will get £32 million in cash and no need for a capital raise. The share price should rocket as well. If we dont and they have to self-finance this thing we are looking at either a Gupta bail out or insolvency. Im still optimistic though. The govt have talked about a CfD for floating wind and with a bit of lobbying we should be able to get that extended to cover tidal as well. Revenue from an operational Uksmouth might be enough to keep them going until the French projects come through and if they make it that far they could actually have a long term future. Still very much in the speculative category though!
No idea. SP down today despite this good news. The funding should keep the company going long enough to get Uksmouth away and potentially progress next stage of Meygen. Firms up the Raz Blanchard plans as well. It's not clear how much Atlantis will get but it's the best piece of news for tidal in a long time. Recent job advertisements were encouraging too.
Coming to this late but my view is that the challenges facing the SP aren't particularly down to SIMEC or Gupta. The company had been scrambling to diversify as far back as Jan 2017 when it became increasingly apparent the Conservatives had no intention of supporting new renewables. They first went after tidal lagoons before Philip Hammond pulled the plug on that and then tried floating wind with a JV with Ideol (anyone remember that?) with talk of international tidal opportunities in Canada, France and Indonesia to try and keep up appearances. All of this has amounted to nothing so far. I would argue that Uksmouth is actually a potential get out of jail card. If it comes off they will have an asset cable of producing 100 times more electricity than Meygen today and they instantly become a viable power generator with a long-term future, able to survive the next 10 years until the tidal industry hopefully finds its place. I have plenty of doubts about the company, not least where the money is going to come from to build out the conversion, and am personally not thrilled about the idea of making money from burning waste but the idea that everything was going swimmingly before Simec got involved seems a bit odd to me. In 2016/17 they had a promising tidal technology with no route to market and the same is basically true today. Uksmouth at least gives us a shot.
I agree an adjustment will come at some point but not until the execute on something. At the moment they are essentially a loss making company with 4 turbines in the water and no guaranteed route to market for any of their developments. If Meygen gets a CfD (not likely under current system) or Uksmouth reaches financial close the SP will rocket. It's not impossible to imagine both projects stalling e.g. if government decides all we need is offshore wind or Uksmouth doesnt get planning approval or finance. There was no mention of Equitix in the last RNS which also concerned me slightly. I really like this company and have confidence they could become a big player in 5 years or so but a lot of their future value is speculative. For instance the turbine and engineering services division is irrelevant until another commercial project gets off the ground (Meygen is still pretty much the only one) and the tidal range 'industry' is in limbo as well going nowhere unless something dramatic happens. I think we just have to be patient with this one and cross fingers that Uksmouth comes off. If that happens the company is immediately transformed and they have a viable future. If it doesnt then us shareholders will have a tough decision to make!
My latest theory is this is based on forthcoming CCC recommendations and maybe knows something we dont about government plans to get behind green gas. I did hear a rumour govt are going to announce net zero by 2050 this week. On the other hand the current bunch are very committed to north sea O&G and fracking so maybe see gradual transition to hydrogen based gas as a way to keep the existing industry relevant. Hopefully there will be something concrete coming and its not all purely speculation. The last surge in 2017 was driven by little more than a positive write up in one of the Sunday papers I think (cant remember which one) and it has been steady decline ever since.