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Windar has the wind at its back; shares continue to strengthen

Last updated: 09:20 09 May 2016 BST, First published: 10:49 14 Mar 2016 GMT

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Windar's laser guided systems sit on the top of turbines, and help boost power generation.

The share price rally of 50% since the end of March shows that Windar Photonics PLC (LON:WPHO) is very much in demand among small cap investors.

Windar’s investor update on April 5 marked the latest positive step in the commercial roll out of the WindEYE LiDAR product, the company’s laser guided systems that sit on the top of turbines and enable their positions to be optimised for prevailing wind conditions.

That order was for 15 units, to be supplied to a Chinese customer in April, 2016.

Chief executive Martin Rambusch emphasised that Windar was making progress in multiple markets and he described the Chinese deal as an important milestone.

And on  May 9, it unveiled financing deals worth up to €2.7mln  to capitalise on the traction it is receiving for the technology.

It has brought in €1.2mln (£1mln) via a share subscription at 110 pence each and agreed what's called a factoring facility with Nordea Bank Denmark A/S - the largest financial services group in the Nordic and Baltic region.

Rambusch said he expected significant orders to come through in the current year.

"Ensuring that we have a mix of available financing solutions in place to support the expected growth in orders in the current year is an important step in our growing maturity as a business," he said.

Analysts reckon the Danish based AIM listed group has developed a disruptive measurement technology, which is better and cheaper than nearest competitors and that the market is set to grow.

LIDAR technology helps optimise wind power generation

Windar’s technology analyses the wind ahead of a turbine so it can be optimised to fit conditions. In other words, short term variations in wind speed can be measured before they reach the wind turbine which can then be adjusted to deal with these changes.

The principle of LIDAR was developed  in the 1970s but Windar has enhanced and fine-tuned it using lasers.

According to Windar, the WindEYE units increase annual energy production from each wind turbine by 1-4%, and at the same time it reduces costs associated with maintenance and repair.

Depending on the price of power, the sensor could pay for itself within 12 - 36 months. And overall, in terms of asset value, the sensor systems typically add 4-7% to turbine’s worth.

Windar uses lasers and there are no moving parts so it is much cheaper than competing products in the market. The product is over 60% cheaper and almost 50% lighter than the best competing products.

The AIM quoted company already acts as supplier to six of the top ten global utilities and four of the top ten global wind turbine manufacturers and is in talks with many more.

At the end of 2014 there were 268,000 turbines operating and with prices of these huge structures falling it is estimated that 24,000 news larger turbines are being installed annually across the globe.

Aside from the new Chinese order, Windar announced in March that it has received an order for eleven units from large utility firms and wind farm owners and operators in North America.

New contracts reflect the significant opportunity seen by Windar to expand its global reach and demonstrate what it believes are significant benefits to utility scale wind generation projects.

City broker sees the Windar share price much higher

In March, Cantor Fitzgerald started covering the stock with a 'buy' and a 148p price target.

Analyst Adam Forsyth valued the firm using the discounted cash flow model, arriving at 296p but notes the company is relatively unproven and sees the product effectively at the demonstration stage of development, thus the 296p figure is halved to arrive at the price target of 148p.

The main investment risks are that take-up of units takes longer than expected but the analyst says early interest from the market is reassuring.

Forsyth said in March: "After a false start with a Chinese distributor that led to disrupted sales in 2015, Windar is now making progress through direct selling and is very close to serial orders with both utilities and a number of Chinese manufacturers. The company expects to achieve revenue in the range €6m to €9m in FY 2016 and to be profitable that year."

In February, Windar group rejected a claim from TRES Wind, its distribution partner in China that its termination of its agreement was unjustified and Cantor notes this issue creates a potential legal challenge, but the company has been advised that it is well placed in this regard.

"Windar has developed a potentially disruptive wind measurement technology, in our view.

“The added value it can bring to both wind turbine owners and manufacturers is evidenced by initial inroads with many leading industry players," concludes the broker.

On May 9, Windar shares gained 4.35% in London to stand at 120p each.

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