By Richard Gill, CFA

EQTEC (EQT), the waste gasification to energy technology company, has announced a detailed update on progress across its project and commercial pipelines.

Here in the UK, work for a full detailed quote for the grid connection at the Billingham Energy Project has been completed by grid operator, Northern Powergrid, and the quote has been received and accepted by EQTEC. The Billingham project is expected to process 200,000 metric tons per annum of refuse derived fuel (RDF) from municipal waste, with EQTEC acting as lead developer and technology provider and provide its engineering, design and technology expertise.

A non-binding project finance term sheet has now been received, signed by EQTEC and is being assessed by a consortium of potential equity investors. The funding structure comprises both senior debt and mezzanine tranches and requires an equity contribution from the consortium of developers of 10% of the total project capex. This is currently estimated at c. £170 million and in line with previous estimates of between £150 million and £180 million.

Also, following detailed technical due diligence on EQTEC’s gasification technology, an offer for a Technology Warranty Insurance Policy has been offered by an international underwriter. This is considered by EQTEC to be in-line with expectations and will be offered to the funders and the EPC contractor as part of the project structure.

Over in the US, at the flagship North Fork project in California, a detailed engineering plan was completed and delivered by EQTEC to the EPC contractor and partner Phoenix Energy as planned in April. A second milestone payment of €770,000 was received by the company in May. Preparation work at the site has commenced in-line with the project programme, including the requirement to have the equipment located at the firm’s Newry site in Ireland being shipped to the US by no later than August 2020.

Meanwhile at the NAPA project in California, a full planning permit for the previously announced new location, initially to accommodate a larger 2MWe capacity power plant, is still under process with some delays attributable to COVID-19. The client is now evaluating the option of a larger installation and has requested a full quote for an increased 3MWe plant.  This was completed and provided by EQTEC.

At the company’s first project in Greece, announced back in March, a full project technical due diligence report has been completed by TUV Hellas, the nominated engineer of the local Greek bank offering the project finance, which has now been presented to the bank. Also, project third party financial due diligence requested by the bank, has been completed and provided. The bank’s credit committee meeting for project final approval has been rescheduled to first week of June due to the Bank prioritising COVID-19 related loans in Greece, with a response expected during the month. Under the scope of the company’s framework agreement with German EPC firm ewerGy, 13 potential new projects in the Balkan region have now passed the initial due diligence phase and fall under exclusivity.

Elsewhere, 10 new commercial enquiries were received by EQTEC in Q1/early Q2 2020 and full detailed commercial offers, with an aggregate potential sales value of c.€120 million, were made during the period. EQTEC has progressed discussions with a European infrastructure operator of district heating and waste to energy and the parties have selected three potential projects for financial due diligence, which has already commenced. Once completed, the intention is to develop the projects together under a new framework collaboration agreement.

ASSESSMENT

This latest statement from EQTEC shows progress across a broad range of its projects, further development opportunities elsewhere and, overall, further delivery on the strategic plan by the new management team, led by David Palumbo. All the above has been achieved despite the inevitable minor delays to the timing of certain projects and of course in the midst of a global pandemic in the period reported upon. If anything, progress has accelerated over the past two months.

Shares in EQTEC currently trade at 0.205p, up from 0.155p since we updated coverage on the company on 24th March. However, that price remains well below our peer derived EV/EBITDA multiple based target of 0.78p. Also, reflecting the low valuation in relation to peers, EQTEC currently has an enterprise value of just over £10 million. This is in stark contrast to AIM listed peer Powerhouse Energy which currently commands an EV of £54.7 million. This follows a more than doubling of the share price since the beginning of May, amazingly, on the back of no significant operational news. In our view, Powerhouse’s much higher valuation does not reconcile with the fact that it remains pre-revenue and that EQTEC has a substantially larger pipeline of profitable commercial projects lined up. Should EQTEC trade on the same EV as Powerhouse then the value per share would be 1.33p.

EQTEC goes into the remainder of 2020 with a strong pipeline of projects, with key partnership agreements in both the US and Europe setting the scene nicely for growth over the coming years. There remains execution risk involved in meeting our forecast figures, with the potential for projects to be delayed being a major constituent of this. However, as we have seen in the past, EQTEC shares have been responsive to positive announcements to the market. With the potential for a strong flow of news we therefore see a number of possible catalysts for the shares throughout the year and thus retain our stance of Conviction Buy.

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