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Cantor Fitzgerald thinks SIMEC Atlantis Energy shares have potential to go above 300p, a near ten-fold increase

Published: 15:27 27 Jun 2018 BST

Uskmouth power station
The Cantor analysts said while the tidal opportunity remains, the Uskmouth project “brings a really flexible asset into the mix and the portfolio beyond this is strong”

Cantor Fitzgerald thinks SIMEC Atlantis Energy Limited (LON:SAE) shares have the potential to go above 300p, a near ten-fold increase on the company’s current share of 33.75p.

The punchy prediction came as the City broker recently initiated coverage on the AIM-listed firm with a ‘buy’ rating and a 75p per share price target.

READ: Atlantis Resources to transform itself into a diversified renewable energy company with significant power generation asset acquisition

In a note to clients the City broker’s analysts noted the transformation of tidal power firm Atlantis Resources into a major renewable energy development company with a pipeline of strong assets following the acquisition of SIMEC Uskmouth Power Limited (SUP) from SIMEC UK Energy Holdings Limited, which completed earlier this month.

SIMEC UK Energy is part of GFG Alliance, an international grouping of businesses with turnover of US$13bn turnover, led by Sanjeev Gupta.

The Cantor analysts said while the tidal opportunity remains, the Uskmouth project “brings a really flexible asset into the mix and the portfolio beyond this is strong”.

They added: “Combined with the ability to secure offtake in long-term agreements we think SIMEC Atlantis will offer a diversified opportunity of scale.”

Tidal opportunities remain

On the tidal front, the analysts said the successful development of MeyGen 1A, a difficult first-of-a-kind project, shows that the company is a credible renewable energy developer, and they think the group can do more in the tidal space “given a cost trajectory that could see tidal competing with leading edge technologies after factoring in intermittency costs.”

But, they added: “SIMEC Atlantis can do much more and the deal with SIMEC widens the opportunity and brings diversity.”

The analysts noted that the initial opportunity in the 220MW Uskmouth power station brings a large flexible generation asset backed by a robust contract suite that should deliver attractive returns on the base case with upside potential on top.

Strong pipeline of renewable and energy storage projects

Beyond that, they added, SIMEC Atlantis has right of first offer on a strong pipeline of renewable and energy storage projects, including include some high output hydro projects and some innovative storage projects.

The Cantor analysts pointed out; “The scale, technologies and stage of the assets mean that, while attractive, we see few natural buyers. Combined with the ability to secure bankable offtakes in long term agreements, we think SIMEC Atlantis can add value here.”

They said their discounted cashflow approach is backed by a comparison with FTSE 250-listed biomass power station firm Drax PLC, which supports their valuation for SIMEC Atlantis of 75p a share.

The analysts added that a clearer route to financing would de-risk the business to get a 106p valuation, while the additional portfolio could take this to over 300p.

Risks acceptable

The Cantor analysts concluded: “Financing the equity component of Uskmouth remains the biggest risk to our valuation but the company has options so it should not have to come back to the market on weak terms.

“Conversion risks exist although the engineer’s report gives comfort and other projects have successfully converted in the UK. Feedstock availability could limit production but waste studies suggest there is more than enough material in the UK.”

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