The UK government has announced its long awaited hydrogen strategy and also launched a consultation on funding hydrogen production. The strategy confirms support for both green and blue hydrogen production as well as for the replacement of natural gas in around 3m homes. Subject to the consultation, the price differential between fossil fuel solutions and hydrogen will be subsidised by the use of contract for differences based on the existing UK support for offshore wind. As with the earlier ene
Companies: DRX ITM PHE SAE SIT VLS
Drax’s interims see the first contribution from Pinnacle Renewables as well as continued strong revenues from system support. The period has seen the company completely cease commercial coal operations, sell its gas-fired projects and move biomass carbon capture and storage (BECCS) plans forward with planning now submitted for CCS at the Drax site. The company has also commenced the planning process for expansion of capacity at Cruachan. Overall, we see Drax as making strong progress to develop
Companies: Drax Group plc
Drax will acquire a further 130,000 tonnes of biomass pellet capacity through the acquisition of minority stakes in projects owned by Pinnacle Renewables. While marginal (c.3%) of capacity, it makes sense to add where it can. We see the global bioenergy carbon capture and storage market as a major opportunity for Drax and all new capacity should benefit the company.
The International Energy Agency (IEA) published its Net Zero by 2050 roadmap. This confirms work by others showing high demand for renewable energy, storage, electric vehicles and hydrogen if we are to reach a position of global net zero emissions by 2050. Given historic criticism of the IEA for failing to recognise the role of renewable energy, we see this report as an important indicator of how far expectations are shifting in favour of clean energy.
Companies: ADN DRX GSF ITM NESF PHE SAE SIT STRLNG TLG VLS
Drax has had a good Q1, benefiting from a volatile UK power market which has highlighted the benefits of its flexible portfolio. The company can also now be seen as a fully renewable energy company and is making strong progress towards being a negative emissions company. The early completion of the Pinnacle acquisition allows it to benefit from growing opportunities in BECCS, acknowledged in last month’s IRENA World Energy Transitions Outlook as key to delivering a 1.5oC outcome.
Shareholder support clears the way for the Pinnacle acquisition, now expected to complete in April. We continue to see the deal as a major expansion of optionality for Drax and allows it to become a major upstream supplier to the growing opportunity in bioenergy, carbon capture and storage (BECCS). With additional recent funding progress at the Zero Carbon Humber initiative, Drax is in a strong position across the BECCS supply chain in our view.
Drax has seen success in yesterday’s Capacity Market auction, securing contracts which extend support for the Cruachan pumped storage project and the hydro projects in Scotland. It has also won long term contracts for three of the four small gas peakers it has under option. Any development of these remains subject to the Group’s decarbonisation plans. The market clearing prices were broadly in line with previous years. There is some speculation that prices will be stronger in future rounds as co
The Drax prelims show continued progress in generation and pellet production with the impacts of COVID 19 on the customers business within expectations. The company is delivering cost reductions in its pellet supply business and this business will be significantly expanded with the proposed acquisition of Pinnacle Renewable Energy, turning the company into a major vertically integrated biomass business.
Drax Group has announced the acquisition of Pinnacle Renewables, a
major provider of biomass pellets based in Canada with operations in
British Columbia and Alabama. The combination will make Drax the
world’s leading biomass provider. We see biomass and carbon capture
and storage (BECCS) as the key route to the negative emissions required
to bring about a net zero world. Drax’s move should allow it to capture a
significant proportion of the value of growing demand for this solution
in our view.
Greater clarity from the UK Government on funding for carbon capture and storage (CCS) is welcome for Drax. We expect the deployment of CCS to allow the company to continue operating its biomass units profitably beyond 2027 when current support mechanisms end. This initial guidance for simple CCS suggests that CCS costs can be covered and a marginal positive valuation impact from running ahead of unabated plant is possible. However by delivering biomass and CCS (BECCS), Drax offers a fully negat
The sale of Drax’s portfolio of combined cycle gas turbines (CCGTs) removes some revenue in the near term but the ability to reinvest the proceeds in the pellet business should replace this quite quickly in our view. While the loss of near term income has an impact on valuation this should be offset by a better long term future in the pellet business. As a result our base case valuation increases from to 515p from 505p.
Drax has made further progress on debt financing, refinancing its revolving credit facility, drawing on its previously announced infrastructure facility and using its recent bond issue to redeem earlier loans. While much of this is tidying up, it provides efficient longer-term financing visibility at a time when the company has strong investment opportunities notably in biomass supply. The group cost of debt is now well below 4% at c.3.7%.
Historically exposed to coal, Drax had to adapt to ecological constraints. Which we believe it has failed to do. We have therefore decided to terminate our coverage in order to allocate our resources to companies that are in tune with tomorrow’s challenges.
Drax has announced additional loan facilities which will reduce its all-in cost of borrowing to below 4% and we see this as helping to give Drax the firepower to expand its US-based biomass feedstock business efficiently. We see this business as having growing importance as several governments look towards biomass carbon capture and storage as a key component of the net zero tool kit.
Drax is a major enabler of the energy transition. It is the only UK investment opportunity of scale that can offer exposure to BECCS, long duration storage and low carbon spinning reserve, all essential to deliver what is now a legal requirement for net zero emissions by 2050. We initiate coverage with a central case valuation of 505p.
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AFC Energy announced that it has entered a hydrogen fuel cell supply and
collaboration agreement with partner, Urban-Air Port Limited (“Urban-Air”), a
leading UK developer of ground infrastructure for the growing demand in
autonomous airborne drones and electric take-off and landing passenger
Companies: AFC Energy plc
Companies: Ceres Power Holdings plc
Powerhouse’s partner HUI’s funding of long lead time items shows a commitment to the company’s first European project in our view. As with Powerhouse’s own funding of similar items at the initial UK project, this helps to de-risk the timeline and moves the company towards establishing a wider European market.
Companies: Powerhouse Energy Group PLC
Companies: Kier Group plc
Velocys continues to see supportive policies develop with the recent US proposed Sustainable Aviation Fuel tax credit adding to the potential attractiveness of projects in America. The company continues to progress its reference projects at Bayou in Mississippi and has provided technology under licence to Red Rock Biofuels in Oregon. Further policy support can only be helpful in growing opportunities for the company in North America in our view.
Companies: Velocys plc
Companies: DX (Group) Plc
Companies: Staffline Group plc
AFC Energy’s statements and recent integration work with ABB highlight growing interest from customers which bodes well for orders in the months ahead. The forthcoming S-series of products will expand the Group’s portfolio and should deliver much high power densities and improved economics. The deployment of fuel cell technology is increasingly recognised by Governments and industry as a key tool in reducing global greenhouse gas emissions, which we expect will drive momentum for deployment in a
H1 results reveal continued strong progress, with closing ARR up c.25% LFL at £6.6m driven by new subscription agreements, importantly validating CKT’s growing investment in sales and marketing with headcount doubling in H1. Meanwhile, CKT’s pipeline is up 4x since the start of the year so we anticipate growth to be maintained (or even accelerate) in H2. In this context, CKT is tracking comfortably in line with unchanged FY22 estimates, having achieved sales of £7.9m, ~53% of our full-year forec
Companies: Checkit plc
Oil declined amid Russia's plans to boost upcoming overseas oil sales and as the dollar rallied.
Futures in New York ended the session nearly 1% lower on Friday. Russia will increase its oil exports 3% in the fourth quarter, according to Interfax. Meanwhile, gains in the US dollar reduced investor interest in commodities priced in the currency.
Despite weaker prices on Friday, US benchmark crude futures gained more than 3% this week due to tightening supplies. In the US, crude inventories
Companies: FO 88E DEC EME GTC TRIN UOG WEN
Despite the challenges presented by the pandemic, TP Group Plc delivered strong organic revenue growth of c14% YoY in H1/21A, with Adj EBITDA increasing to £1.7m (H1/20A: £1.4m). Improving visibility leads us to upgrade our revenue forecasts by c4% for FY21E to £66.0m (90%+ of which was covered by the order book at H1/21A). Expanding margins in the Consulting division are expected to be offset by temporary margin pressure on Engineering contracts during FY21E (our £4.2m FY21E EBITDA remains unch
Companies: TP Group Plc
Exactly one year ago, the FTSE 100 closed at 5,862, having fallen 100 points on the day, the lowest point since mid-May 2020, due in part, to the strength of sterling vs US$ at $1.34. One year on, the FTSE 100 has risen to 7,119, a rise of 21%, it remains 7% below the peak in January 2020. From an international viewpoint, US and European markets continue to trade at record highs. The US Federal Reserve is close to withdrawing some of its economic support this year as inflation picks up and the e
Companies: AMYT BAG BVC BRSD CLG CML FBD GDWN INV MACF MNZS MIO NRR NSF NBI MATD PREM QFI RUA SCS STVG SUR SNX UPGS VAST VLS
Filta has released a solid set of H1/21A results, delivering Adj EBITDA of £1.3m (H1/20A £0.2m). Rising vaccination rates and the continued reopening of hospitality and leisure markets provide an increasingly favourable industry backdrop for the company. Filta is emerging from the pandemic with a stronger business profile and robust balance sheet, having launched new products and services, and expanded its customer list. Given the improving prospects, we believe Filta remains attractively valued
Companies: Filta Group Holdings PLC