Edison Investment Research has issued a bullish note on Helius Energy (LON:HEGY), saying that as the UK’s only pure biomass generator, the company could capitalise on the significant demand for renewable energy.
As per the research house’s estimates, the share price could be three times the current 25 pence, which at the moment gives it a market cap of £22 million.
Edison stated that the biomass generation market is experiencing significant growth and Helius has every chance to capitalise on it. The expansion of the market is due to the UK’s growing demand of alternative sources of energy and biomass generation is well placed to satisfy that need, said Edison.
The broker added that the current share price does not reflect that the company’s management team has demonstrated that it is able to create value by developing biomass projects.
As an example, the report cited the sale of the Stallingborough project to RWE for £41 million within three months of receiving permission.
“We believe that Helius, with its managerial expertise, proven track record of value creation and sound finances is well placed to play a substantial role in the deployment of biomass in the UK,” Helius said in the report.
As for the Avenmouth biomass plant project, Edison noted that environmental group Coedbach Action Team, whose challenge to revoke the planning permission for the project was rejected, had the right to appeal. However, the broker said that it expected the project to proceed and did not rule out a realisation of at least a part of its value.
The report concluded that at the current levels the market only valued the cash on the balance sheet and the Stallingborough earn-out.
Helius has £12.7 million in cash. Edison predicts the cash balance to be at £10 million at the end of September.
Helius Energy identifies, develops, owns and builds biomass generation plants in the UK. Historically the projects have ranged from 7MW (mega watt) to 100MW, though Edison said that they are likely to be at the upper end of that range in future.
Helius expect to reach financial close on a 7MW project at Rothes in Scotland later this year and possibly raise its stake to 90%.
According to Edison, once Rothes and Avonmouth commence operation, in 2013 and 2014 respectively, “a more predictable stream of revenue should begin to emerge.”