By Richard Gill, CFA
Shares in waste gasification to energy company EQTEC (EQT) have risen to the top of the leader board today after announcing a promising MoU with partner COBRA Instalaciones Y Serviciosm and Scott Bros. Enterprises. The conditional deal is with a view to jointly developing the proposed up to 25 MW Billingham Energy waste gasification and power plant in Haverton Hill, Billingham, County Durham, which is expected to process 200,000 metric tons per annum of refuse derived fuel (RDF) from municipal waste.
Under the MoU, which is exclusive for six months and extendable, EQTEC will act as lead developer and technology provider for the project and provide its engineering, design and technology expertise. It will work with COBRA to produce the full engineering, procurement and construction (EPC) and operations and maintenance (O&M) services.
EQTEC will also work alongside COBRA to secure the necessary funding for the construction and development of the project through the introduction of third-party equity and debt investors. Financial close is conditional on a number of factors including the completion of due diligence on the project, the necessary funding being secured and the EPC and O&M contracts having been entered into. The estimated project value is said to be in the range of £150 million to £180 million.
This is a significant potential project for EQTEC (its largest to date) and higher in terms of potential capex value than previously indicated – the company previously pointed to projects in the pipeline ranging in value from €10 million to €100 million. As we recently pointed out in our Initiation of Coverage note, EQTEC could earn c.25% of the total estimated project value so applied to this deal it could earn in the region of £37.5 million to £45 million. Timing of the deal completion of course remains one of the main risks to the investment case.
This is the first deal agreed with COBRA (a company engaged in the engineering, construction, operation, installation and maintenance of industrial & energy infrastructures), with which EQTEC entered into a strategic alliance in February last year. This was with a view to identifying and collaborating on waste-to-energy projects that will use the company’s gasifier technology. Making revenues of over €3 billion in 2017, COBRA is an excellent partner to have on board, providing numerous further opportunities for work on projects in the renewable energy sector.
We also note the comment from CEO Ian Price, “With our project pipeline continuously expanding and developing key strategic partnerships, we aim to deliver significant value for our shareholders with key contract wins in the near term.”
Following the news shares in EQTEC have risen to 1.025p, ahead of 0.845p at the time of our initiation last month. The current price remains well short of our target price of 2.293p, which we maintain on the back of this latest news. With the potential for a strong flow of news over the coming months we continue to see a number of further possible near-term catalysts for the shares. Our stance remains at Conviction Buy.
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