Quantafuel – What Brokers Say About the Esbjerg JV Announcement

Quantafuel yesterday announced a partnership with Eurazeo for Esbjerg plastic sorting facility. Eurazeo is a global investment company, with a portfolio of EUR 32bn AUM, focused on ESG. The most important aspect of the announcement is QFUEL demonstration it can sign up partnership with a strong financial backers. Global players are interested to partner with QFUEL. It is another reconfirmation of QFUEL strengths. It is quite likely, the cooperation could continue on other projects. Another positive news from QFUEL.

Pareto Summary on the Announcement

Marking a new standard for financing – backing our estimate assumptions
Quantafuel has signed a 50/50 joint venture with Eurazeo for the Esbjerg sorting facility. The parties will share all capex equally, estimated to NOK 670m, both historic and in the future. With a cash position of NOK 577m per end of Q1’22, QFUEL should be well positioned to complete its part. We believe this marks the first of many joint ventures with financial partners to come, which will be vital to succeed on the company’s rapid roll out plan of PtL projects. This announcement backs up our estimate assumptions, for more colour on our assumptions and estimates, please view our recent update; Transferring coverage with BUY, TP NOK 19.       

About Eurazeo:
•   Eurazeo is a global investment company, with a portfolio of EUR 32bn AUM, including EUR ~23bn from third parties, invested in 530 companies and focused on ESG  

Additional comments:
•   With this announcement, QFUEL delivers on the comments given at the Q1’22 presentation, where it stated that the financial partner for the Esbjerg sorting facility was to be announced in due course
•   We believe this JV marks another important business case verification for QFUEL, as Eurazeo has used third parties to conduct various DDs, ranging from financial-, legal-, supply chain-, technical- and ESG DDs for both its sorting and PtL business
•   Given the size of this large European PE/infrastructure fund, we see it as possible that Eurazeo could participate in JVs for future PtL projects as well
•   Delivering on its PtL business will still be the most important going forward, but signing a financial partner for this sorting facility is an important step to get there, and might open for JVs for future PtL plants as well  

Implications for QFUEL’s financing strategy:
•   We believe that this JV sets a new standard for QFUEL’s financing strategy, since all previous projects has been financed mainly by equity. This supports our estimate assumptions where we have included 50/50 JVs for alle future projects in our estimated time interval
•   We have not included any debt financing in our estimates, as we believe the company must prove its project profitability over time before considering this option
•   Since the next PtL facility on our estimates comes on stream during late 24E, debt financing for those projects is not likely to have much impact on our financing estimates during our estimated time interval (22-26E)  

About the JV:
•   Eurazeo will acquire 50% of the shares in Quantafuel’s wholly owned subsidiary Quantafuel Esbjerg Aps, which will develop and operate the plastic waste sorting plant in Esbjerg
•   Eurazeo will buy into historic capex, which up until now has comprised mainly FEED and occurred in 2021, amounting to some tens of NOKm. For the future, they will share all capex        

Arctic Securities summary:

Quantafuel: Disclosed financial partner on Esbjerg sorting

QFUEL yesterday during trading hours announced that it has signed a JV agreement with Eurazeo (financial player) for development and operation of the Esbjerg sorting project, an announcement that has been highly expected for some time. Note that this is a sorting plant, which is necessary to enable chemical recycling (QFUEL’s core business). The plant will have a capacity to handle 160,000 tonnes of plastic waste per year. Based on current gate fee’s seen in the market, we estimate the plant to generate NOK ~250m in annual EBITDA on 100% basis and expect the plant to be operational in H2/23). We have valued the project at NOK 2.0 per share, where we have risked the project by 15% (applying zero risking would lift our SoTP valuation by NOK 0.3 per share).

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Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.

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