ATOME Energy PLC (AIM:ATOM) has had its target price increased to 190.3p from 168.4p by analysts at Liberum Capital with a reiterated 'buy' rating following news of the expansion of its flagship green ammonia production project in Villeta, Paraguay, doubling its capacity.
The increase in capacity to 120MW from 60MW will enable the facility to produce up to 100,000 million tonnes (Mt) of green ammonia per year once operational in 2025, the analysts noted.
They said: "ATOME continues to be one of the only new energy stocks globally that has outperformed YTD, +41% vs Wilderhill New Energy index -38%, underpinned by continued operational momentum since its IPO, 12 months ago."
Further to the May 2022 60MW Power Purchase Agreement (PPA) signed with ANDE, the Paraguayan National Power Company, ATOME has successfully renegotiated this agreement to 120MW of available 24/7 baseload 100% renewable power for its Villeta project. The Liberum analysts noted that this is the largest PPA ever signed between ANDE and an industrial user.
READ: ATOME Energy doubles size of first Paraguay green ammonia plant, with FID in second quarter of 2023
The Villeta Project is the first phase of the company’s total planned 420MW pipeline in Paraguay. Specifically, the 120MW Villeta project is expected to be the largest dedicated green ammonia facility in Latin America by the time it is operational in 2025.
The analysts said: "To put this into context, at the company’s IPO in December 2021, ATOME had a planned capacity target of 350MW (250MW in Paraguay, 100MW in Iceland). In 12 months, the management team has increased this to 520MW whilst delivering the largest PPA announced in Latin America to date based on currently available renewable power."
The 120MW green ammonia facility will be located on the 75-acre Villeta site acquired earlier this year, and adjacent to ANDE’s recently constructed and commissioned substation. The site itself is situated within kilometres of the navigable Paraguay-Parana Waterway with major port, industrial and United Kingdom agricultural centres nearby.
The enlarged project has the potential to deliver significant economies of scale, and therefore even more attractive in the global markets looking to source green energy and green fertilisers, the Liberum analysts noted.
ATOME has also appointed its Front End Engineering Design (FEED) contractor for this project. The consultant for the FEED is the Spanish engineering firm Urbas Energy-Ingeser, with strong experience in delivering projects in Latin America, in cooperation with TSK, who have an extensive track record of integrating and delivering international infrastructure energy projects on a world scale, and Swiss company Casale.
Casale is among the few licensors that can provide integrated engineering and technology solutions for the full production chain of nitrogenous and phosphate fertilisers including ammonia.
The Liberum analysts said: "We are therefore of the view that ATOME has selected an enviable line up of advisors to undertake the necessary engineering and design approach to evaluate and control project expenses and thoroughly plan this considerable project, with the intent of avoiding significant changes to the build-out phase and reflecting the project-specific requirements. In terms of timeline, management has confirmed that the full FEED study for the now enlarged 120MW facility is expected to complete in Q2 2023 enabling ATOME to move to FID."
Ahead of the results of the FEED study, which will serve to quantify expected synergies in terms of capex requirements and costs, the analysts said they have updated their discounted cash flow (DCF) analysis, doubling the capacity at Villeta. Using the same valuation metrics and approach as previously has doubled the net present value (NPV) for the project, they added.
"However," the analysts said, "we do take into account that with increased scale, comes increased risk – in terms of execution and timing. We also note the increased funding requirement, which we forecast to be c.US$200mln on current estimates on a full 120MW 100% project basis."
"We, therefore, reduce our Chance of Development from 75% previously applied to the 60MW project, to 60%, upgrading our TP to 190p/share. We do however note that if applied at 75%, our TP would increase to 204p/share," the analysts concluded.