Ryan Mee, CEO of Fulcrum Metals, reviews FY23 and progress on the Gold Tailings Hub in Canada. Watch the video here.
Thanks RKB,
I've become a shareholder this week. That's an extremely useful post to show the potential margins in the UK business.
My understanding is that the increase to 55MW would come primarily from just increasing the shift numbers so that the Italian factory operates around the clock.
Therefore it should be a fairly quick process to increase the capacity, without much capex needed.
Agreed that the overheads could be spread. I was working on the basis that the £6m EBIT number was broadly made up of £8m of gross profit on panel sales less £2m of overheads.
At 55WM the gross profit becomes £22m, leaving £20m EBIT after the £2m overheads are deducted.
I don't think the £2m overheads will increase much. All of the additional variable costs (materials, staff costs etc) would be included in Cost of Sales in arriving at the gross profit.
Using a 1.25 Euro/Watt price changes the £20m EBIT to £30m EBIT.
I’ve been looking again at the potential profits next year.
At 20WM and the base price of 1 Euro/Watt we’ve been told they will make £6m EBIT.
I continue to think the average selling price will be quite a bit higher than 1 Euro/Watt.
The Michael Walters articles are very informative, I think he is clearly speaking with the company. Michael highlights that the company has the opportunities for selling some product at Euro 1.5 or more per watt. The latest order RNS spoke about the first order into the ‘very profitable’ marine market and another company in the marine sector, Solbian, is selling their panels at 5.60-9.90 Euro/Watt.
Using 1.25 Euro/Watt give about £10m EBIT vs a market cap of £30m. As more orders are announced I think the market will begin to price in the 20MW factory being full, at which point a £100m market cap wouldn’t be unreasonable (34p a share).
That’s just at 20MW before production expansion to 55MW from the current factory.
The company raised £1m two months ago. It was made clear on the call we had with the company as part of the fundraise that they wouldn’t need to come back to market for money.
In fact they increased the size of the fundraise due to investor demand. This ensured it was a definitive raised and gave them a cash buffer.
Now that orders are coming in the cash flows should start becoming very positive.
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.
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.
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.
I agree with Shedjock that the second Oil and Gas contract was material. This is suggested by the following statement in the RNS:
‘Due to the size, the project will start this week with procurement activities and will be shipped to the client at the beginning of September.’
The fact that it was a regulatory RNS, rather than an RNS Reach also suggests it was a material order.
We’ve been told that the company will make about £6m EBIT in 2021 if they can fill the 20MW factory at the base price.
The CEO also stated the following in the results last week.
‘Due to the increased demand seen, one of my first decisions was to increase the operating capacity of the facility in Italy to cope with the expected order levels over the coming months. The work to increase capacity has already commenced.’
This strongly suggests they are anticipating orders to exceed the 20MW capacity. If this happens then the £28m market cap looks very cheap.
Part 4
This could be revolutionary, allowing graphene solar cells to be incorporated into all manner of electric-powered products from portable computers to cars and way beyond. Should it succeed, it would take Verditek into an altogether different dimension. Instead of speculating on adding tens of millions to the market value of the company we are looking conservatively at hundreds of millions. Progress has been hampered by the coronavirus, but there could be real progress late this year, early next.
Harrison suggests such a breakthrough could raise the solar energy conversion from the low 20% area to the high thirties or more. That might be over ambitious, but ...
At present there is no need to count value in the Verditek share price for the Paragraf project. It stands up well without it. The prospect of success with the current lightweight flexible solar panels ought to be sufficient to multiply the current share price if and when orders come through. This report does not properly cover all of the opportunities for selling such panels.
New chief executive Rob Richards is absolutely confident he and his new sales team can generate substantial orders across a variety of industries, and quickly. In the weeks and months ahead, there could be a strong flow of encouraging news.
It requires only one or two substantial orders to demonstrate his credibility and confirm that Verditek shares look remarkably cheap. Absolute proof of transformation to a big winner has yet to emerge, and it would be unwise to suggest that Verditek is bound for glory just yet – but the odds look favourable, and it is not too late to buy and enjoy the ride.
Part 3
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.
All of this leaves the £1.86m loss for 2019 looking irrelevant. While production is still building up, it is possible that the company could hit breakeven for 2020. The Harrison interview suggests that the time for preparation is over. The kit has been tested to destruction in heat and cold, hammered by hail the size of golf balls, and guaranteed to last. The proper certificates have been secured, and there are no technical problems.
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. At 8.20p, the company is capitalised at £24m.
Such sums look sketchy at this stage. On the cautious side, it is worth emphasising that there are still no orders of great substance, simply the clear conviction in the company that they will come soon. If they do, projections look conservative, nothing to take seriously. If this works, they could quickly be left behind, but we are still at the ‘if’ stage.
We have little idea how quickly production can be expanded, and how soon the Milan factory could be joined by others, even if all goes well. There is talk of free cash flow in 2020. That suggests that there are no plans to raise extra funds by issuing more equity and diluting what we have, but if orders flow in as fast as some project, who knows what extra cash might be useful to accelerate growth?
Then we get to the cream on top of the cake. Right now, it is just a beautiful dream, one which has yet to come true. There are potentially exciting possibilities in a biofilter project and an interest in liquid gas absorption technology, but the real thriller is in the graphene solar project being developed jointly with Paragraf.
That company appears impressive, with a pedigree out of the immensely valuable chip technology which made ARM Holdings worth billions. Paragraf and Verditek have a 50/50 project which has created a working graphene integrated photovoltaic cell that converts sunlight to electrical energy with busbars or backplates. The second stage is working on improving performance, developing patents and commencing commercial discussions for the product.
Part 2
At this point, the company is not able to confirm many definite orders. Toggle between the Harrison comments and those from Richards and it is clear that firm orders are expected soon. How soon and how large, we don’t know.
There are already smaller orders in South Asia, South East Asia, and Europe. One has been announced – just over a week ago there was one from SAF Group (part of Caterpillar) for kit which replaced diesel generated power at gas transmission sites in Pakistan. Apparently it was not massive, but not too small.
The first order from the oil and gas industry appears to be close. The company has been targeting companies in Australia, and there could be action from the mining, marine, and agriculture industries (it is not clear whether all of these are from Australia). There are possibilities in South Asia and in South Africa where the mining industry is beset with problems from the erratic state energy supply.
Harrison talks of a big Aussie deal with panels in containers to service the mining industry. He says it could be possible to save $3m a year, and points to the incentives introduced by the government in Canberra, allowing a concession for a year which would allow companies to cut capital costs by 50% on installing what could be a high margin product for Verditek.
Richards reckons that the global lightweight solar market could be worth $28bn by 2022, so there is plenty of room for Verditek. There are a couple of competitors in Australia, but they can be beaten on price.
There is a huge potential market in agriculture in Australia dealing with water dams for cattle. These are easily polluted and the cattle get sick. It is possible to filter the water, but that is very energy intensive. A solar panel would power a lightweight portable water treatment plant in the field.
The dreadful bush fires in Australia have also illustrated the vulnerability of the power system there. Power lines and such are burnt out and the rural fire and emergency services could use a solar system which would supplant that nicely.
There is also talk of a massive 2 gigawatts untapped opportunity in the Middle East where there is a vast number of drilling rigs whose power needs could be better served by flexible solar panels. This looks like low hanging fruit, and just a part of the potential would provide a vast market.
Among the other opportunities there is keen interest in the marine market. Several companies are talking to Verditek, and there could be an initial order soon. The volume might be relatively low, but margins could be high.
There appear to be a host of possible orders in the background generated by a team of eight experienced salesmen working on commission and recruited by Richards from his previous contacts. This report by no means covers them all as, hopefully, we will discover in the months ahead.
Part 1
Good gracious! It would be folly to guarantee that Verditek (VDTK) is going to switch from a cash-strapped, loss-making weakling to a revenue-rich, booming business in the twinkling of an eye – but it looks very much as if it could.
Pause for breath. Read and recite all of the sensible cautions. This is a small, relatively young company, cash is tight, the technology is relatively new to the market, there have been no sales or revenues until very recently, it has been slow to gain traction, and the chief executive only arrived a few months ago. Fairy tales do come true, sometimes.
Verditek, it seems, is no fairy tale. Quite suddenly, powered by the ambitions of new chief executive Rob Richards, it has switched from chasing a series of alluring but mostly smaller scale opportunities to seeking to secure major orders in more substantial markets. If it succeeds, the outlook will be transformed.
The company makes lightweight, flexible solar panels which have crucial advantages over the panels we see frowning darkly from the roof of assorted factories and houses, and are mostly mass produced in China. The weight and flexibility of the Verditek kit means it can be used in many more places than the traditional panel, and it can be transported cheaply and fixed easily.
Go to the Verditek website at https://verditek.com/ and there are pictures of it in action in all sorts of applications. At this stage, it is not clear how far along the way to firm orders these examples might be. We know the panels are selling on the curved buildings, and there are serious talks going on over other ideas – possible military use and the top of trucks – but while these are nice ideas, it seems as if these are small beer, and any early volume might come from elsewhere. Paul Harrison, one of the founders who is not on the board, has talked in an informative video at https://vimeo.com/427963339/dcc3b0dc0b about doing a deal with one of the world’s biggest trucking companies.
In the newly minted 2019 annual report, Richards points to the importance of solar panels in providing an alternative source of electrical power which removes the need for using diesel fuel for generators. Diesel is expensive and especially costly to transport. Harrison explains that the cost to the Australian army of transporting fuel to Afghanistan was $200 a litre. Ordinary solar panels are heavy to transport, reflect light, and get obstructed by dust. Verditek panels are light, durable, work in the shade, repel dust, and can be camouflaged.
What’s not to like? There are talks with a tier one Aussie defence company and trials are close. Others, impressed by the massive fuel savings and easy transportability, are also talking. It is part of the Verditek advantage – replacing wet fuel with dry.
Here is the great free article on the Michael Walters site from 30 June. There has been another update on 2 July on the site for members only. I think Michael is happy for this article to be posted. I’ll need to post it over a few messages due to size.
I think Solbian take the underlying cells from high quality suppliers (such as Sunpower) and apply their technology, including incasing in their own polymer to protect the cells. This allows them to pass the certification.
I don’t think SunPower’s own semi-flexible cells are certified.
I don’t think there is another supplier of certified flexible cells who will be in competition with Verditek for the projects they are going after (off-grid diesel to solar conversion). This is the company‘s belief too.
Just catching up on posts.
I don’t think competitors are worth considering unless they have been certified under IEC 61730 and IEC 61215 standards.
Large end users and EPC companies will not consider using anything that isn’t certified.
Verditek’s cells have been tested by TUV. As part the testing they were exposed to 6 months of extreme temperature cycles (-40C to 85C), damp-heat, mechanical-load and hail tests which simulate aggressive ageing and exposure to differing climactic conditions.
One other company that have flexible cells that are certified is Solbian. They are high end cells initially designed for marine application and won’t compete with Verditek on large installations.
Here is their price list.
https://solbian.solar/wp-content/uploads/2020/01/SOLBIAN-Solar_pricelist-EN-inclVAT.pdf
Their top cells are 9.9 Euro/watt and the cheapest cells are 5.6 Euro/watt.
Verditek are working on selling from 1 Euro/watt.
I’m yet to come across another certified competitor who comes close on price.
Feeks,
IMO - free cash flow should be the bottom line change in cash of a business after all expenditure (including capex).
Rob has said they expect to be generating free cash flow within 2020. I take this to mean that by the end of 2020 they will be in a position where they have more cash at the end of each month than at the start of each month.
Of course, something like a new factory wouldn’t be factored into this.
I subscribe to Michael Walters. Great update yesterday.
Feeks,
Like you this is now become a large part of my portfolio. No intention of selling any though.
I believe the current factory can be scaled to 50WM with little additional cost.
We then have the option to open a new factory of our own, license out the manufacturing, or a combination of the two.
We’ve spent time and money on R&D perfecting the technology. Now that we’ve perfected the technology I think we can use fairly standard equipment to manufacture the panels that isn’t too expensive.
Total cumulative property plant and equipment cost were only £658k as at 31 Dec 2019.
I think the company could fund another factory itself if needed.
Rob RIchards isn't hanging around!
Looks like a material order given this comment:
'Due to the size, the project will start this week with procurement activities and will be shipped to the client at the beginning of September.'
Write up by Zak Mir, who has a lot of followers:
https://twitter.com/ZaksTradersCafe/status/1278304969037414401?s=20
Closing comment:
'So far they have seen Verditek’s stock double in recent weeks. Chart wise, it would seem that the same can and will be achieved over the summer, especially if new contract win momentum starts to accelerate. Perhaps just as important will be the arrival of green and ethical funds to the table, a group who may need to invest heavily in the likes of Verditek to build a weighting in this space to please their investors.'