I trust you’re all well and fingers crossed the market is delivering returns.
For this week’s resource report I thought I’d take a look at a company I previously covered for cube last Summer
– Simec Atlantis Energy (SAE)
The company is AIM listed and a world leader in hydro & tidal power.
Since my piece, the share price has been on a roller coaster of a ride. At 12p, its market cap is £60 million:
When I last covered Simec, I suggested a number of reasons why investors shouldn’t touch the company with a bargepole:
1. Historic poor performance
SIMEC Atlantis’s first day of dealing was on the 20th February 2014 at a price of 94 pence per share, giving the company a market cap of £72.1 million.
6 years later the share price is 13 pence per share with a market cap of £64 million.
Update: 7 years later the share is 12 pence per share with a market cap of £60 million!
2. Inability to stick to timelines or guidance
This is my largest issue with SAE – according to previous announcements, SIMEC’s Uskmouth project should already be under construction with Q4 of this year being the target for production.
Instead the company has yet to award the EPC or even announce financing terms and recently announced that the EPC award and financial close would be delayed until Q1/Q2 next year.
Irrespective of Covid, the conversion was already massively behind schedule.
Update – continually behind schedule and the planning application has been requested to be reviewed by the Welsh government, news due imminently. Positively, however, the project has been recommended for approval by Newport council.
3. Loss making business
SAE is currently loss making as is evidenced by last year’s results –
“Overall Group losses for the year were £35.4 million (2018: £24.1 million). The increase in this loss is primarily attributable to a £16.1 million non-cash disposal of seabed options for five development sites“.
It goes without saying that companies that don’t generate any cash from FCF may need more of it through other means.
Update – still loss-making, although another £2 million came into the kitty this week.
4. New Risk – GFG Alliance issues
SAE is 42.98% owned by SIMEC Energy which is owned by the Gupta Family Group (GFG) Alliance.
Sanjeev Gupta has been in the news a lot recently due to debt issues related to his involvement with Greenshill
There is a risk that GFG attempts to liquidate their shares on market. I believe this is unlikely as the shares are illiquid making this nearly impossible and also because GFG’s shares in SAE are not meaningful when compared to the other issues they’ve got. I believe GFG is more likely to get some kind of government bailout or see some of their assets part nationalised. Labour are saying nothing should be off the table to support Liberty Steel
5. New Risk – Waste from Energy project scrutiny
A couple of weeks ago there was a Channel 4 despatches documentary on waste from energy (WfE) projects in the UK. This was previously discussed in the Grauniad
Whilst SAE’s project isn’t a conventional WfE project, increased scrutiny of the project may increase costs, cause delays and increase the likelihood planning issues.
Reasons to be bullish
1. Bad news priced in?
The SAE share price is back down to the placing price. I believe that sentiment towards the shares couldn’t get much worse and that concerned investors would’ve already sold out.
Disclosure for readers – upon reading about the GFG alliance issues, I sold all my shares in SAE at 15.5p. But I’ve subsequently bought shares back between 11.22p and 12.04p.
2. UK (and global) governmental investment into Green Investments
Global governments and investors are falling over themselves to invest into Green projects.
Given Uskmouth’s flagship status for SAE, it’s easy for investors to forget that SAE is a world leader in tidal and hydro power. Given the tsunami of cash searching for Green investments, I see no reason why some of it wouldn’t be directed towards SAE.
Companies like Powerhouse Energy & EQTEC have market caps which are more than double or quadruple SAE’s, despite those companies having uninspiring revenues or not generating meaningful profits.
3. Carbon Capture Storage grant
Earlier this week SAE announced that a consortium that they were part of has awarded £20 million to help de-carbonised the region
Of note: “As a partner of SWIC, we will carry out feasibility work on carbon capture usage and storage at Uskmouth”.
The addition of carbon capture to the Uskmouth project would be great for the environment and increases the likelihood of planning consent being granted.
4. UK amendments to the CfD Scheme
5. New CEO
In January, SAE announced a new CEO had been appointed, Graham Reid
“SIMEC Atlantis Energy, the AIM listed sustainable and renewable energy developer and operating company (AIM: SAE), announces the appointment of Graham Reid as the new Chief Executive Officer and a Director of Atlantis effective 18th January 2021. Tim Cornelius has agreed to take up a new role as a Senior Adviser to the Group and will consequently resign his position as Chief Executive Officer, effective the same date.
Having delivered more than 5GW of wind, solar and storage projects in previous roles, Mr Reid has been selected by the Board of Directors to build on the successful development history of the Company and to use his considerable project management and delivery experience to steer Atlantis through the delivery phase of the Uskmouth Power Station conversion project, the build out of fuel production plants, the expansion of the MeyGen project and the development of further hydro asset opportunities.”
Graham appears to have the relevant expertise to deliver what long-suffering SAE shareholders have been waiting for. Tim Corneolus may have been a fantastic visionary, however as an executioner with regard to Uskmouth it’s not unfair to say that he failed.
6. 50/50 Joint Venture with N+P for plastic waste fuel pellets
Stijn Jennissen, CCO of N+P Group, said:
“The investment in the development of a new type of Subcoal® has led to a unique fuel that is combustible in converted existing coal burners. We believe this unique fuel will revolutionise the way coal fired power stations operate in the future. We are very excited to be the sole fuel supply partner on the Uskmouth project in Wales via our ownership in NPA Fuels, which we believe will be the catalyst for many more power station conversions globally. We believe that the Uskmouth contract will be the start of a rapid growth, profitable and scalable business and we look forward to growing NPA Fuels with Atlantis in the UK over the coming years.”
Ideally, the company will have Uskmouth to showcase Subcoal technology however even without it there’s no reason why the technology couldn’t be utilised elsewhere in the world.
7. Additional Investment from US based investor
The funds will be used to “allow SAE to take advantage of investment opportunities across the Company’s tidal energy, Uskmouth conversion, energy pellet, hydro and sustainable infrastructure project portfolio”.
Given the negative sentiment and questions around the GFG alliance, I view this as a huge positive. Why would someone inject £2 million unless they saw value? Having said that as a shareholder I’d obviously prefer if dilution occurred at higher prices!
As readers should ascertain an investment into SAE is not without risk! The question I would ask is whether the risks are fully priced in?
The market in my opinion is pricing in a reasonably high chance that the Uskmouth planning decision will be reviewed by the Welsh government causing further delays and that ultimately the project will be rejected.
If this happens undoubtedly the shares will take a dip. Conversely, if the Welsh government don’t call the application in, positive sentiment should return as planning could be granted – and I believe the shares will rocket in this scenario.
If Uskmouth doesn’t come to fruition, it’d be incredibly disappointing for shareholders. However SAE, has many strings to its bow.
I’ve invested a small amount of my portfolio back into SAE (2%) and would be more than happy to top up at either lower or higher prices depending on newsflow. Fingers crossed that my investment proves to be the coal of the future rather than purely a lump of coal,
Till next week!