Infrastrata (INFA) – Gas-powering my portfolio

Infrastrata (INFA) – Gas-powering my portfolio

Infrastrata (INFA) is an AIM listed company which owns the Islandmagee salt cavern gas storage project in Northern Ireland (latest share price 1.435p, market cap 17 million).

This project qualifies for the “UK Guarantees Scheme”, meaning that the government could guarantee debt finance for up to 65% of project costs, reducing its weighted average cost of capital.

The project is important for the UK because 70% of UK gas storage will be lost as the Rough gas storage site closes.

(Source: Google)

Gas market dynamics

This graphic highlights both the state of gas storage in the UK and the relatively advanced nature of INFA’s project. In November, it completed its Front End Engineering Design (FEED):

(Source: INFA presentation)

During cold weather the UK gas market has shown extreme volatility and the reduction in gas storage will only compound the issue. Last year, gas prices soared to a 12-year high. This volatility is of interest to energy traders and INFA is in discussion with 6 parties interested in offtake agreements. Any off-take agreements signed should aid with financing as this further de-risks the project.

Many under-capitalised energy providers continue to go bust as they don’t have the balance sheets to withstand price volatility.

The Islandmagee project will help to reduce price volatility which is good for consumers, utilities and UK energy security.

Islandmagee – Gas Storage Project

The company’s final results summarise the project:

  • The Board believe that the facility will provide over 25% of the UK’s Natural Gas Storage.
  • It will be situated adjacent to the Scotland Northern Ireland Pipeline (SNIP) and the Moyle 500 Megawatt Electricity Interconnector.
  • To date approximately £13.5m has been invested in the project.

The project is designed to be built in multiple stages:

(Source: INFA presentation)

INFA has estimated the (undiluted) NPV to be:

(Source: INFA presentation)

These projection do not take into account the possibility of INFA being classified as a project of common interest for EU funding. INFA has applied for inclusion on the Projects of Common Interest list.

Equity financing will be required and the company is in the process of evaluating long-term equity partners. This has been slightly delayed from the end of Q4 deadline but this is good news for shareholders with John Wood stating

“Our goal was to have identified our preferred long-term Project equity partner in Q4 2018, in order for us to commence the enabling works early in 2019.  With a new offer being presented to us last week we have considered our position and it is our duty to fully evaluate this offer as it may add value for our shareholders over and above the other offers on the table; this bodes well for our future endeavours”.

INFA issued invitations to tender for the Engineering, Procurement and Construction (EPC) contracts to six companies. Submissions are due by 28th February 2019 for the company’s evaluation.

Directors – high quality and they’ve bought shares on market

CEO John Wood was appointed in June last year.

His FEED-related experience is excellent:

“John has undertaken projects in Australia, USA, Africa, Europe and the UK, building up extensive experience delivering pre-FEED, FEED, FID (Final Investment Decision) and EPC  (Engineering, Procurement and Construction) contracts involving storage and infrastructure developments.”

Given previous INFA management’s lack of timely delivery, John set up FEED milestones for shareholders to judge the company’s performance against and completed all milestones on time by the end of 2018 deadline.

Managers including John have purchased INFA shares on market with John owning nearly 4% of the company, albeit most shares were bought around the 0.5p – 0.6p range.

I also have a positive view of the rest of the company’s management team.

Future value

The company’s vision is To be a leading global energy Infrastructure development company”. In a recent interview John Wood stated:

“that the company wants to move from a company with one gas storage project to one with multiple infrastructure development organisations and companies under our umbrella with multiple revenue generating streams.”

At this stage I wouldn’t attribute any value to this aspiration from the company but I would view it as offering upside potential if/when additional projects are brought on stream.

As a shareholder in INFA I believe that 2019 will be transformational for shareholders with Islandmagee equity financing, debt financing and Final Investment Decision all due. Currently the shares trade at a circa 85% discount to management’s undiluted estimated Islandmagee NPV. As each of the aforementioned stages completes the Islandmagee project will continue to be de-risked.

I view management as high quality and given the UK gas storage market outlook and Islandmagee’s strategic importance to the UK and EU, I view the likelihood that the project will be developed successfully as high. In the mid to long term I look forward to John and the team adding other projects to the portfolio.

 

Further Resources

The company’s most recent presentation can be found here.

The company has excellent shareholder communications through both RNSs and Twitter, CEO John Wood is also active on Twitter.

 

At the time of publication, the author holds a long position in INFA.

CATEGORIES

COMMENTS

Wordpress (0)
Disqus (0 )
Your Cart