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Aggregated Micro Power Holdings plc: THE INVESTMENT CASE

Aggregated Micro Power Holdings PLC wants woodchips with everything

Boilers are an area of the green fuel business that have come under increasing scrutiny from the Cameron government.
Aggregated Micro Power Holdings PLC wants woodchips with everything
INVESTMENT OVERVIEW: AMPH The Big Picture
Forest Fuels is one the UK's largest suppliers

Aggregated Micro Power Holdings PLC’s (LON:AMPH) move to acquire Forest Fuels, one of the UK’s largest woodchip suppliers, looks a smart one.

In the marketing man’s jargon it builds on the ‘verticals’ for this supplier of biomass-fuelled boilers used by schools, care homes and business parks,

More prosaically, Richard Burrell, Aggregated Micro’s chief executive, said the deal will give it a foothold in a fast expanding sector.

“One of the UK's largest suppliers of premium grade wood fuel, Forest Fuels is a rapidly growing business in a rapidly growing sector.

“The current installed renewable heat capacity in the UK market is 3% with a Government target of 12% by 2020.

“The acquisition will therefore accelerate AMP's growth by providing a market leading distribution capability in wood fuels operating from 20 regional depots and providing us with a platform for further roll-up opportunities.”

What the government wants

What the government wants is an important consideration for any business, but even more so in the case of Aggregated Micro.

Boilers are an area of the green fuel business that have come under increasing scrutiny from the Cameron government.

Changes to renewable heat subsidies (RHI) have already been proposed, though not quantified.

The RHI provides support for several different types of energy generation such as heat pumps, biogas generation and biomass boilers.

Gasification also heats wood to produce a gas that is cleaned, cooled and channelled through a carburettor to produce heat and power.

This can then be sold to the national grid or direct to local users.

AMP uses heat from the gasification process to dry its own wood chip, which is then sold to owners of chip boilers, typically within 50 miles or so of the plant.

Heat used to dry wood chip is eligible for RHI from the government.

Burrell said AMP needs to know the areas would be targeted and what the changes would be.

Final details are expected in April.

What Forest Fuels brings

Meanwhile, AMP has added the wood chip business of Forest Fuels with a customer base of more than 1,000 customers.

Combining its business with its existing biomass and CHP boiler operations should boost development fee income and generate revenues from wood fuel contracts.

Terms are £2.82mln cash plus up to 2.5mln shares dependent on performance for a business that made profits of £160,000 on sales of £7.3mln in the year to March 2015.

A placing of 3.19mln new shares at 54p will raise £1.72mln to help pay for the deal, while a convertible loan issue will bring in a further £4.07mln.

What the boss says

Proactive Investors interviewed chairman Neil Eckert 


 

On the Forest Fuel products:

“They’ve got two main product lines – wood chip where they are about 4% of the UK market, and wood pellet – both of which go into biomass boilers.”

On the Forest Fuels financials:

Turnover last year was about £6.6mln. It’s a growing business and profitable, and gives us a distribution network.”

On boiler market growth:

“There is a roll-up opportunity in the market. The RHI (Renewable Heat Incentive) announcement in November saw the government recommit to their strategy, and their target is to quadruple the size of the market by 2020.”

What the broker says 

Broker finncap added Forest Fuels is a good fit with AMP’s existing biomass operations, both geographically and in terms of its target customer base for the supply of wood chip and pellets.

It is profitable, with strong sales growth of 66% in the year to March 2015.

What the company is about

AMP, meanwhile, continues to see a strong development pipeline for its small-scale biomass boilers, coupled with not-for -profit energy saving companies (ESCOs).

Once a project is finished it is taken over by a special purpose investment vehicle AMPIL, which frees up capital for Aggregated Micro to fund more new projects.

Aggregated Micro provides fuel for the boilers (wood chip and wood pellets) and commissions and installs them on a long term contract.

In November, the company said it was running well ahead of its target of installing £5mln worth of boilers a year.

In addition, the group has a 50% interest in Real Ventures, a developer of two 50MWe biomass CHP plants that need project finance in excess of £300m.

Finncap is reviewing its estimates following the Forest Fuels acquisition, but at 55p the company is worth £14mln.

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