RE: Future Prospects18 Jun 2020 11:37
(3/3)
Will this be a £1bn company? Let’s assume that it trades on a conservative PE multiple of 50x. That’s very low for a high growth company in a high growth industry. To be worth £1bn, it would need earnings of £20m in a particular year. I’ll ignore discounting entirely for ease – clearly a big omission.
Let’s ignore Altalto and Natchez entirely and instead just look at revenue earned from selling reactors and licensing the technology to other plants. The operating cost base is presumably reasonably stable and would go up far slower than revenue, so really it comes down to what it costs them to produce reactors. The Red Rock contract is for 4 reactors at a cost of $12m (see RNS 12 Feb 2019). Let’s assume the mark-up on those is around 50%, i.e. around $1.5m profit per reactor. The RNS of 4 May 2018 (when the contract was for 6 reactors) also states that there would be $30m revenue over the life of the contract. Presumably this has dropped to $20m now that it’s four reactors. That’s $5m per reactor, which presumably is largely profit given any on-going staff time is already part of the operating cost base, catalyst is relatively cheap and any repairs and maintenance would be charged at cost. Call it $3m profit per reactor for the on-going licensing and catalyst.
That’s $4.5m profit per reactor over its life. Red Rock have an order for 4 = $18m profit. Red Rock intend to build further plants as well. Toyo (RNS 19 September 2019) have paid up for a demonstration plant and have already put a deposit down for an order for a full plant. Let’s assume that’s another 4 = $18m. Just on the above we could be talking £5m a year of profits and potentially far more if further orders come in. That implies a company worth £250m at 50x multiple.
Let’s pluck a number out the air for VLS share of profits from Altalto and Natchez. £30m? That gives a further £1.5bn of market cap, i.e. £1.75bn. With 644m shares in issue, that’s £2.71 per share. Clearly this is incredibly hacky, ignores time value of money and ignores dilution, but you can see how this quickly stacks up into a huge company.
Be conservative, call it £1 a share. At any moment in time it then becomes a question of “how much am I willing to pay now for my share of growth in future?” For now the answer seems to be 14-16p. As time goes by and as project milestones are hit at Natchez and Altalto (and as further cash comes in from Red Rock and Toyo), it’s not hard to see that someone would suddenly pay 20p per share for something that might be worth £1 down the line. Then someone else will pay 25p, etc, etc.
Keep your eye on the situation. Particularly if any of the assumptions on financing and tech are wrong, as those will decimate the share price. This is going to start looking very, very cheap if they keep ticking off the milestones though…
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