As flagged in Leclanché's March trading update, FY17 revenue development was held back by lack of funding. Management has recently completed a sequence of financing transactions that it estimates will be sufficient to take the company through to an EBITDA-positive position in FY20. We reinstate our estimates, which were withdrawn following the March trading update.
Revenues, excluding CHF3.5m grant income primarily for a European ferry project, halved year-on-year during FY17. Revenue growth would have been substantially stronger if Leclanché had secured sufficient funding to make faster progress on two large stationary energy storage projects in North America, which it expects to complete this year. EBIT loss widened, from CHF34.5m to CHF36.1m, as the restructuring and cost-reduction exercises taken in late FY16 and early FY17 were offset by higher consulting costs and commissions on financing. The financing situation did not prevent the company from adding to its pipeline of projects in both the stationary storage and e-transport sectors.
Over the last six months management has secured c CHF94m funding, which it estimates is sufficient to fully finance Leclanché to positive EBITDA in FY20. This provides the cash to deliver on the pipeline of contracts already received for delivery during FY18, which total over 50MWh of capacity, representing CHF40- 50m. These include a 33MWh battery storage plant in Cremzow, Germany, completion of two major energy storage projects in Canada and the US and projects with Skoda Electric and an Indian automotive integrator. We note that the bulk of the financing is through convertible loans from a shareholder who we estimate currently holds a 53% stake in the company. We estimate that these convertible loans would, if fully converted at the current share price, represent an additional 39.6m shares.
Our valuation is based on a DCF calculation, taking the growth rate adopted in our estimates and now applying a terminal growth rate of 3% and WACC of 10.0%, as we believe both the technology and Leclanché’s ability to execute on large projects are proven. This gives an indicative valuation of CHF2.51/share. Our previous indicative valuation of CHF4.34/share assumed substantially faster volume roll-out by working on large projects where Leclanché needed to find project finance and applied a WACC of 15% to reflect funding concerns, which we believe have now been resolved.
