Edison Investment Research issued a report on Helius Energy (LON:HEGY), saying it does not believe that the market currently accords sufficient value to the group’s biomass-fuelled power generation projects.
In its view Helius could be worth around 68 pence per share - significantly higher than its current share price of just over 20p.
Edison said Helius’s results for 2010, reported yesterday, were in line with the research house’s expectations apart from the non-cash adjustment to the value of minus £3.8 million net of the Stallingborough earn-out following the renegotiation of its terms.
The renegotiated sale and purchase Agreement with RWE allows Helius to receive an upfront cash payment of £8.8 million as soon as RWE awards contracts and commences construction of the project, rather than having to wait to receive 13 percent of Stallingborough’s after tax profits spread over a 24 year period. This will afford Helius greater financial flexibility in the development of its project portfolio, Edison said.
Helius is in late stage due diligence on its 7.2 MegaWatt Rothes project in Scotland. During the course of the year the company achieved Section 36 consent and deemed planning permission for its Avonmouth (100MW) plant and signed an option for a site in Southampton where it plans to build another 100MW plant.
Helius remains bullish on the prospects for biomass generation and believes it has sufficient resources to expand its portfolio: it expects to add a further 200MW of capacity to its existing portfolio of projects being consented/developed over the next two years.
Edison concluded: “We use a SOTP-based analysis for valuing Helius. Our analysis indicates that at current levels the market is valuing only the cash on the balance sheet and the Stallingborough earn-out. Our base case valuation of Helius suggests that the company could be worth 68p/share.”
Numis Securities featured Helius in its 'Morning Meeting Notes' today, noting there was "little material news on project development with Helius's finals". "We continue to believe that there is material value creation opportunity from the UK biomass market, and that Helius shares offer very good value." Numis has a 34p price target on the stock.