By Richard Gill, CFA

EQTEC (EQT), the waste gasification to energy technology provider, has raised a total of £16 million via a share placing, offer and subscription at 1.5p per share, an 11.24% discount to the previous day’s closing price. As our previous updates have highlighted, EQTEC has over the past few months developed a significant pipeline of projects. Between July 2020 and February 2021, non-contracted tender opportunities worth a total potential of €316 million were added for a total potential pipeline value of €657 million. With this in mind, the company will use the proceeds of the placing to take full advantage of a number of near-term opportunities and to prepare itself for further long-term growth.

In the UK the funds will be deployed to secure and deliver the refuse derived fuel (RDF) pipeline. This will include capital investment in freehold land and full project rights for one or more of the existing projects in Billingham, Deeside and Southport, along with other similar opportunities in the pipeline.

In Europe, revenue growth will be accelerated in the company’s target markets of Greece, Croatia, Italy and Spain. This will include the acquisition and recommissioning of specific plants, including the recently announced revival of the 1MWe waste-to-energy plant in Castiglione d’Orcia, Tuscany, Italy. The funds will also be used for the delivery of biomass-to-energy solutions within local communities, to showcase EQTEC technology capabilities and performance and to accelerate interest and growth in those markets. Additionally, there will be further establishment and funding of joint ventures with local partners in target markets, for dedicated, local operations to drive sales growth and delivery.

Further inroads will be made in the US by pursuing existing opportunities in the biomass-to-energy pipeline in California, including formalising partnership agreements with local partners and investing development capital in accelerated pursuit of new deals.

Finally, EQTEC will invest the funds in its operational infrastructure to extend its platform for growth. This will include the acquisition of additional engineering capability and capacity to support concurrent delivery of multiple projects in multiple geographies, as well as further growth of the business development and partner management teams. There is also planned to be investment in monitoring, measurement and data management technologies as part of EQTEC solutions, for remote management and for growing the library of operational performance data.

ASSESSMENT

This is a substantial fundraising for EQTEC, which  puts the company in an excellent position to accelerate both its near and long term revenue growth. We note that the placing was over subscribed, further demonstrating strong investor interest in the company and the alternative energy sector, with Ian Pearson, Non-Executive Chairman and Director, also putting in £100,000 of his own money.

Over the next few months we now expect the strong flow of news coming from the company to accelerate. In the UK all eyes are on the flagship  RDF project at Billingham, which is anticipated to have a contract value in excess of €30 million to EQTEC and lead the way for two more similarly-sized UK RDF facilities in 2022, in Deeside, Flintshire and Southport, Merseyside. Meanwhile in Europe, EQTEC is pursuing multiple deals, mainly in Greece, Croatia, Italy and other central and southern countries. Five to eight deals are expected to close this year with contract values over their life totalling €20 – 30 million.

We last updated our valuation on EQTEC in April this year following the announcement of the surge in the project pipeline. At the time we expected a maiden EBITDA profit for the current financial year of €3.46 million, with this rising sharply to €23.5 million in 2023 as the substantial non-contracted pipeline is expected to translate into commercial success. However, with this latest funding round allowing the acceleration of revenue growth we now expect these figures to be materially higher and are currently working on updating our financial model and valuation.

EQTEC shares currently trade at 1.56p, pretty much half the value of our current EV/EBITDA/peer comparable valuation. of 3.115p per share. So with the shares looking extremely cheap even before our forecasts revision we are happy to retain a stance of Conviction Buy.

RISK WARNING & DISCLAIMER

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• EQTEC