By Dr. Michael Green
Investors were greeted by a really illuminating announcement this morning which demonstrates that substantial value is being created at ion Ventures, where Coro Energy has a 20.3% stake.
Coro has big plans for energy storage, backing highly cash generative projects and in November 2020 took its stake in ion Ventures for £500,000. At that stage, ion Ventures had 250+MW of battery storage projects with consent in SE Asia and UK/Ireland. In addition, Coro has first right of refusal to fund each of ion’s clean energy projects, which is what NEDs James Parsons and Andrew Dennan are awfully good at.
This morning ion Ventures announced a new partnership with GLIL Infrastructure Fund LLP (GLIL) concerning ions’ portfolio of grid scale energy storage projects in the UK. This partnership sees GLIL committing up to £150 million of capital into a newly incorporated vehicle called Flexion Energy Holdings UK Ltd. ion Ventures will be transferring its existing portfolio of UK grid scale energy storage projects into Flexion, along with all of its future business associated with the development of UK grid scale energy storage assets. GLIL is a big infrastructure player having c.£2.5 billion of funds under management and backed by the likes of Local Pensions Partnership and Northern LGPS.
GLIL will acquire an initial interest in Flexion of 95%, with ion Ventures holding a 5% interest on a fully carried basis. If certain milestones are met, ion will have the opportunity to increase its fully carried interest to 7.5% ion and receive up-front cash of £0.1 million from Flexion. On top of this, ion Ventures has been engaged by Flexion to provide ongoing development, operational and asset management services.
At the time, Mark Hood, Coro’s CEO was quick to point out that “”We are delighted to note this new partnership between ion and GLIL, which validates Coro’s initial ion acquisition and likely underpins a significant uplift in the value of that investment. The highly accretive transaction sees a material commitment by GLIL to ion’s UK energy storage portfolio, whilst securing a fully carried interest in the portfolio for ion, and therefore Coro. We are excited in particular by ion Ventures’ potential for further growth in South East Asia, in relation to which we retain a right of first refusal to invest in ion’s South East Asian projects. We will continue to update shareholders in the coming months as we look to build on this success.”
Investors should be elated as this is a cracking deal in our view which, in one fell swoop, funds the development of ion’s UK portfolio as well as providing additional resources for ion to expand its South East Asian operations where we believe the big money will be made.
The implied valuation range based on the £150 million commitment and the two scenarios (ion retains 5% = low case, ion retains 7.5% = high case) is £7.9 – £12.2 million for ion (pre-money), with Coro’s 20.3% stake being valued at £1.6 – £2.8 million. Even in the low case, this represents more than a 300% return on Coro’s £500,000 investment made in November 2020. It has to be pointed out that these figures exclude the value attributable to the SE Asian portfolio, which remains in ion and will be the focus for future expansion.
For Coro, there are four really big additional benefits. Firstly, this clearly demonstrates strong investor appetite and bankability of assets which support the energy transition – illustrated by this material commitment from a blue-chip investor. Secondly, ion has been retained to provide development, operational and asset management services to the Flexion vehicle, which is a huge vote of confidence from GLIL in the abilities of the ion management team.
Thirdly, the monetisation of the mature UK pipeline provides the platform for a South East Asian growth phase which now comes into focus. Importantly, the SE Asian portfolio remains 100% owned by ion and Coro retains the right of first refusal to invest in ion’s South East Asian projects. Last but not least, the return on investment implied by the Flexion-GLIL deal provides a blueprint for Coro’s energy transition strategy – that is identifying assets and businesses where the company can add value through the early development stages, as the board is looking to do with the company’s portfolio of wind and solar in the Philippines acquired in the GEPL deal.
With the shares trading at 0.305p, Coro Energy is capped at a lowly £7 million. And of course, on top of the solar and wind power projects is a stake in the Duyung PSC’s Mako Gas Field, one of the largest gas fields ever discovered in the West Natuna Basin, offshore Indonesia where production could start in 2024. There does look to be one hell of a lot going on here for such a derisory market cap.
We initiated coverage on Coro Energy with a Conviction Buy and a target price of 1.50p, when the shares were trading at 0.275p. At the current price following the latest moves, we are more than happy to reiterate our stance.
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