broker note - target price 26p 97% upside6 May 2021 10:14
Mast Energy Developments PLC (MED) the UK focused developer of smallscale Reserve Power (‘RP’) natural gas power plants, has today issued an
Operational Update on its site development pipeline. Briefly, MED now expects
its near-term (6-12 month) power generation capacity to be in the range 54-58
MWs, from its IPO date’s estimated figure of 20 MW. This is a huge step
forward in terms of potential productivity and leads us to ascribe a fresh target
price for the stock of 26p per share, accompanied with a Buy recommendation
? The UK’s Changing Power Sources. As a quick reminder of the macro picture; the
UK is rapidly switching its power generation sources from large scale, fossil fuel
plants to smaller, Reserve Power (RP) gas and renewable sources (Solar & Wind)
plants. Both of which are cleaner and more flexible in terms of satisfying peak
demand periods – but Solar and Wind power sources can be unreliable - thus
MED’s focus upon gas powered plants.
? MED, Sharply Upgrading Output Expectations. At the IPO stage in mid-April,
MED stated its expected power output would be around 20MW within 6 months,
but that this was likely to move higher as near-term acquisitions were completed
and project visibility improved. Today, MED has announced that its power output
expectations are now in the 54-58 MW range, as existing projects are likely to
yield more and a number of new site opportunities have been identified with
MED as the preferred counterparty / developer.
? MW 300 Power Capacity moves closer. MED’s stated power generation target of
300 MW now looks far more achievable; near term probable capacity has risen
sharply, but also MED is currently in talks with a number of other site developers
with site capacities totalling a further 166 MWs.
? Valuation & Recommendation. We believe that MED is well positioned to benefit
from the changing UK power generation landscape and today’s announcement
further strengthens this position; especially as MED has already negotiated an
offtake agreement for all the power it can supply for the coming 15 years. As a
quick reminder, MED listed on 14 April 2021 at 12.5p per share with a near term
power generation expectation of 20MW. MED’s expectations have now risen to
54-58MW, along with a further potential 166MW coming down the track; which
is indicative of the management team’s industry expertise in our view. Given all
of the above, we feel justified in ascribing a fresh near-term target price for the
stock of 26p and reiterating our Buy recommendation.
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