RE: Research Tree note1 Apr 2025 07:55
OMFORT IN NEAR-TERM FORECASTS The trading update confirms that FY 24 results due to be announced by the end of June will be in line with expectations thanks to the shipping of orders secured in the year. Additionally the company has confirmed that FY 25 trading is in line with expectations the 10.8MWh STS supply agreement, the 14.4MWh Everdura order now being joined by the £10m of grant income from the LODES competition. The company has also been working at the corporate level with a review of capital allocation and the redomiciling from Jersey to the UK. With a further move to electronic shareholder communication and the planned cancellation of the secondary listing on AQSE, administrative costs are reducing. Again this gives additional comfort in our existing forecasts. ADJUSTMENTS TO FORECASTS TO INCLUDE THE NEW PROJECT Taken together therefore, the statement gives us greater comfort with our near-term forecasts but have made adjustments to capture the LODES grant income and also the project development and income as it goes forward. We have added the project to our forecasts with the battery economics based on the price spread for a 4-hour battery using the GB market price duration curve. We have assumed other elements of the revenue stack are minimal and we think the outcome is conservative although positive with infrastructure type returns. As a first of a kind reference project the real value is as a demonstration site to market new sales. As a result, our central case valuation remains unchanged at 72p. RISK MITIGATION We also see other risks being mitigated with some positive progress highlighted in the trading statement. The 24% cost reduction at ENDURIUM allows it to compete despite falls in lithium ion battery costs although we also think ENDURIUM can serve markets that are less suitable for lithium ion whatever the cost. The company now retains manufacturing presence in the UK, Canada, China and Tiawan and is engaged in discussions to expand in the USA where funding remains available for part-funded projects with the Department of Energy. Together with the UK partnership with Frontier Energy targeting up to 2GWh of projects under the Cap and Floor support mechanism we see greater backing for these forecasts.