ATOME Energy PLC (AIM:ATOM) is one of the only new energy stocks globally that has outperformed a key sector benchmark, said broker Liberum as it reiterated a ‘buy’ rating.
Fellow house broker SP Angel, which also kept its ‘buy’ rating and 160p target, said it thinks the milestones achieved so far this year towards monetisation through the swift development of its Villeta project is “clearly an attractive route to establish material early cash flows from its operations in Paraguay”.
These comments followed the half-year update from the company on Monday, where ATOME highlighted that it is advancing talks on extending its power purchase agreements (PPA) in the South American country, has secured a grant in Iceland from the government-led Energy Fund, and is increasingly active in developing future growth opportunities in new jurisdictions.
SP Angel analyst David Mirzai said the next key valuation catalyst for investors will be to achieve its first major final investment decision on the 60MW Villeta project in the first quarter of 2023.
Liberum’s Sam Wahab said the company exceeded market expectations since IPO, with the recent PPA signing representing the largest ever between power supplier ANDE and an industrial user, whilst the creation of the Mobility division will see first cashflows brought forward to 2023.
This is why, he said, that ATOME is one of the only new energy stocks globally to have outperformed the Wilderhill New Energy index, 28% to 21%.
Refreshed forecasts led to Liberum updating its target price to 168p per share from 181p.
The new sum-of-the-parts valuation infers a new valuation largely as a result of cash burn since the initiation note at the time of the IPO.
“This highlights that the company’s share price continues to trade a deep discount to Risked NAV.”
The broker has appraised ATOME on a project net present value (NPV) basis discounted at 10%, deriving an individual project valuation in each of its phased strategies across Iceland and Paraguay.
With projects are in varying state of development, Liberum has applied conservative commercial chance of success (CCoS) range of between 10%-90% reflecting the maturity in each business stream underpinning the base case valuation.
Fully unrisked, the valuation indicates that on a pure project level NPV10 basis, ATOME has the potential to deliver a risked valuation of circa US$300mln through its intended projects in both Iceland and Paraguay on a risked 411MW capacity basis, the analyst said, with 311MW in Paraguay and 100MW in Iceland.
As the company evolves in the medium term, generating cash flows in both Paraguay and Iceland, it may become more appropriate to value the company on an EV/EBITDA multiple basis in our view, which could lead to a significant re-rating in our view,” said Wahab.