During H117, Intelligent Energy was reshaped to focus on driving sales of commercially ready B2B products. The group has won contracts in two of its three target segments: stationary power and drones, withdrawn from its Indian energy management business and realised substantial cost savings. However, product roll-out has been slower than originally anticipated, with management in financing discussions with key convertible loan note holders and we have reduced our estimates.
The cost reduction programme implemented during H216 has enabled management to maintain underlying cash burn at £1.6m/month including finance charges and capex. Our model shows that if costs are maintained at these levels, the group has sufficient cash to support the expected growth in commercial products through to calendar 2018, but not afterwards. Management is in discussions with key convertible loan note holders, who are also substantial shareholders, regarding potential financing. It is also considering reducing costs associated with being a listed company, estimated at £1.2m pa.
Having set out the strategy in September 2016 of focusing on near-term opportunities to deliver products for deployment in distributed power generation, UAV and motive applications, management has secured two contracts. The first is to supply 600 1kW fuel cell modules to US-based Luxfer-GTM Technologies for integration into Luxfer-GTM’s Zero-Set Lite portable light towers. The deal demonstrates that IEH’s stack technology, proven during deployment in the demanding environment of telecoms towers in India, is suitable for other applications. IEH has also signed a contract with PINC to supply fuel cell systems for powering airborne drones. PINC's drones are used to monitor hard-to-reach inventory and assets. Switching from battery to fuel cell more than trebles flight times, substantially improving drone efficiency. The Luxfer-GTM contract will see stack production commence in Loughborough, which has the capacity and staffing levels to do this. The existing Suzuki relationship continues, with trials announced with the Met Police in London of Suzuki bikes powered with IEH fuel cells.
Our analysis indicates that IEH is trading on EV/sales multiples that are towards the lower end of the range of its peers. We believe that removal of the funding uncertainty will be a key catalyst for the share price performance.