Author Archives: Fit Investment Ideas

Fearnley Securities published an update on Africa Energy. Very bullish report. I enclose below my summary of their main points from the 18 page long research:

From E To E&P In Global Hotspot

Entering development in South Africa at Block 11B/12B and Block 2B. Drilling of Gazania-1 a major short-term trigger. A discovery could fast track development at Block 2B.

“A new world-class gas and oil play” is what TotalEnergies (TTE) named the Brulpadda discovery in 2019. Then, a year later TTE discovered the even larger Luiperd. Both discoveries are in Paddavissie Fairway at the massive Block 11B/12B (19,000 km2) offshore South Africa. AEC has an indirect 10% WI in Block 11B/12B, that are moving into development (Production Right filed) under the attractive South African tax law. AEC will stay in for development that in full could bring a NPV of USD 300-400m (Phase I and II). Furthermore, Gazania-1 is currently being drilled at Block 2B, the same basin as TTE`s 1.4bnboe Venus discovery. We argue a Gazania project could bring a NPV of USD 484-806m, vs. the MCap of USD 327m. We estimate NAV of USD 868m (Unrisked 1,687m), and raise our TP to SEK 5.0/sh (SEK 4.5/sh, 09.03.2021) based on AEC`s promising development opportunities in South Africa. Buy reiterated with 92% upside to TP.   Short-term triggers ahead A major trigger is the disclosure of commercial gas terms (host government sole offtaker) for the Luiperd EPS project that we conservatively estimate to USD 40/boe. As South Africa is currently 90% powered by coal, the Luiperd project is also a play opener for a South African gas market. Another major trigger is the results of Gazania-1 drilling that is expected mid-November. A discovery in line with our expectations (gross 349 mmboe) would serve as catalyst for the share price. Though we believe AEC will stay in for development at both Block 2B and 11B/12B, potential exits are possible to finance further exploration or development at AEC`s “preferred” block. We see a partial farm-out at Block 2B as most likely, as the field partners need a more mature operator with a track record.   Valuation – Buy TP SEK 5/sh Our NAV-based valuation at 10% WACC derives our TP of SEK 5/sh. We base the valuation on three developments in South Africa at Blocks 2B & 11B/12B. The un-risked value potential under our base case reserve estimate (net 405mmboe WI) comes out at SEK 9.7 /sh, though we stress that positive revisions to these estimates hold the potential to lift that figure meaningfully higher.

Other Recent Investments:

We have entered back into Xbrane today in the capital increase transaction. We have also subscribed to the new shares of Biovica. I wrote here several times on these opportunities, see previous blog posts for details.

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.

Pareto publish their Top Ideas portfolios for Norway and Sweeden. I select from their top 20 stock ideas the ones we like:

Pareto Ideas Summary:

BioInvent – BUY, TP SEK 134 (115)
Closing Q2 with liquid funds of SEK 1.2 bn + SEK 536m from the Exelixis milestone payment and the latest directed issue to specialists like Forbion (so total of SEK 1.7 bn), BINV is among the best capitalized biotech companies in Europe backed by one of the best shareholder bases. After a series of positive clinical trial data in both liquid and solid tumors in 2021 and 2022, BioInvent continued to deliver new clinical data in September with the most exciting (based on scientific rationale and in-vivo & human PK/PD data) program BI-1808 (TNFR2 targeting antibody) having its first safety and single-agent efficacy data released. Based on these progresses we released an update on Sep 26 and increased our target price to SEK 134 (115). We expect that pipeline progression and strong cash position to keep the share price stable in tough times (as it did this year) and to increase when healthcare indices stabilize and even more so if they experience a bit of a relief rally.

Vicore Pharma – BUY, TP SEK 97
In the middle of VICO’s 108% YTD rally on the basis of stellar data in IPF patients, VICO’s share price took a volatile break in September. The COVID-19 program termination induced a -30% stock reaction, which was a great trading opportunity as we pointed out in our newsflash on Sep 21, and then the stock went back up closing September neutrally. After this volatile break, the stock is poised to continue much further in October and November. Why? We expect an IPF readout in late October / early November, analogue to February’s but with close to x2 as many patients, which will cement the drug’s profile in our view (due to the very high, unprecedented effect size reported in these patients i.e. lung function gains in the hundreds of milliliters). As a reminder, drug sales in IPF reached around USD 4 bn last year, comprised of two drugs, one from Roche (Esbriet) and one from Boehringer Ingelheim (Ofev). Despite the two drugs on the market, the median survival after diagnosis is 3-5 years (the drugs are only slightly slowing the decline in lung function in a fraction ). Vicore’s drug, for the first time ever, has shown gain in lung functions in IPF patients that reached the hundreds of milliliters / instead of short-term stabilization or slower decline as competitors. The efficacy demonstrated by Vicore’s drug in the February 2022 readout drug showed a lung function gain of +251mL at week 24 & +751 mL at week 36 – unprecedented and we believe this will soon be further reinforced.

HAFNI – BUY, TP NOK 60
Product tanker rates have gone through the roof as the Ukraine war is sending much-needed diesel volumes long-haul while inventories are running dangerously low. Hafnia delivered a solid Q2 (run-rate P/E 3x) as MRs just finished their best quarter since Q4’04. Q3 will be even better and bookings suggest Q3 EPS of USD 0.53 for run-rate P/E 2x in HAFNI – which alone beats out the mayhem we saw during 2020. Our current NAV of NOK 57 is pushed towards NOK 70 by YE’22 when including Q4 earnings and values up 5% (which might already be history). 2023 estimates are down ~20% y/y despite a healthy tonne-mile demand outlook and virtually no fleet growth – and will be revised higher. The Russia-switch of 1m bpd have not really starting impacting yet, with sanctions coming into force 5 Feb 2023 – and Hafnia is perfectly positioned with a large and healthy levered fleet. BUY / TP NOK60

KOG – BUY, TP NOK 375

We include KOG in our monthly portfolio amid upbeat earnings potential near-term, along with massive contract potential and attractive financials long-term. For Q3, we expect higher activity levels for KM, and positive product mix for KDA to secure solid earnings. With a >NOK 53bn firm backlog and a solid balance sheet, rising defence budgets and improving maritime business, nearly all stars are aligned for KOG. As such, market fundamentals are supportive, and profitable growth set to carry on for the longer. While capital allocation suggests increasing shareholder return ahead. Therefore, risk-reward are on the upside, in our view, where KOG is attractive in an increasingly uncertain world. BUY / TP NOK 375

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.

Pareto Securities hold its annual Energy and Shipping conference. More than 150 companies presented to more than 1500 investors. Major event for the year.

Pareto Securities published most important takes from each presentation. I enclose below a few we found interesting. The bold emphasis was added.

Africa Energy

CEO Garrett Soden
• Africa energy and the partners on Block 11B/12B offshore South Africa recently submitted an application for Production Right, thereby reaching an important milestone for the development of large gas condensate resources of >1bn boe gross
• The partners have proposed a fast-track development of the 11B/12B Luiperd discovery using an Early Production System (EPS) with nearby existing infrastructure
• A Gas offtake agreement for the 11B/12B development has been negotiated, and Africa Energy expects to announce offtake terms shortly
• The company also highlighted the drilling of the high-impact exploration well, Gazania-1, in Block 2B offshore South Africa which set to commence in late September

Africa Oil
CEO Keith Hill
• Africa Oil highlighted a strong dividend stream from its Nigerian assets held through Prime, resulting in a short payback time for the USD 520m acquisition
• Going forward, the company will focus on optimizing operations and growing the output of its Nigerian asset base through infill drilling and satellite tie-ins, with 9 wells to be drilled over the next 12 months
• The company also emphasized that it has several important near-term catalysts including a license extension at OML 130 and the related RBL refinancing
• Other important near-term catalysts include the Gazania-1 spud in late September and an announcement of the gas offtake terms in the 11B/12B development in South Africa, both through Africa Energy’s portfolio of exploration companies

Aker Horizons
CEO Kristian Røkke
• Reiterated its ambitious growth targets ahead with emphasis on the opportunity set increasing since the company was established
• Focused on the potential of Northern Norway in terms of establishing green industry at scale driven by the region’s vast hydropower resources. Therefore, the company has already stated to invest in preparations for a larger build-out of capacity
• A comfortable cash position (est. NOK 10bn in cash equity) enables the company to look at both organic and inorganic growth opportunities

Cloudberry Clean Energy
CEO Anders Lenborg
• Cloudberry has a portfolio of projects in operation and under construction totaling 156 MW and another 168 MW in construction permits. Further, the company has a sizeable backlog of 420 MW and a pipeline of >2,500 MW including shallow water projects in the Baltic Sea
• The ramp-ups in production at Bøen I & II and Skåråna are completed
• The 163 MW Odal wind farm is close to complete with 32 of 34 turbines energized
• The company emphasized the strong power price outlook driven by ambitious climate goals and higher energy demand due to the electrification of industries. The outlook is favorable for Cloudberry

GreenCap Solutions
CEO Ørjan Aukland
• GreenCap Solutions reported progress across all segments; the AgTech project is currently being finalized, and the commercialization of their large-scale direct air capture technology with Norske Skog is continuing at full speed, backed by the recently announced partnership with Vanir Green Industries called Removr
• Moreover, the company highlighted the key differentiators from conventional capture technology. Firstly, in a world with volatile energy markets, efficiency is crucial for reaching financially viable capture solutions, and GreenCap’s zeolite-based technology is one of the most efficient capture technologies
• Secondly, utilizing zeolites, compared to traditional amine solutions, offers a strong value proposal – being more sustainable. The company concluded by commenting that in order to achieve full commercialization of their DAC solutions, the company is considering different financing opportunities

HydrogenPro
CEO Richard Espeseth
• HydrogenPro reiterated its main message from its Q2’22 update, noting large growth in its sales pipeline, growing revenue backlog, and capacity expansion plans
• HydrogenPro received an order to deliver 220 MW to the world’s largest green hydrogen energy hub in Utah earlier this year. It also signed a 10-year service agreement to the project and holds a backlog of close to NOK 800m. HydrogenPro will complete the fabrication of the electrolyser systems in Q3 2023, followed by onsite work with completion in late 2024
• The company is increasing its presence in the US, and is looking to build a 500 MW electrolyser manufacturing plant there in 2023. It has a bullish attitude regarding the major trigger for green hydrogen in the US that comes with the recently passed Inflation Reduction Act. Beyond the Utah project, the company has several other opportunities in the US
• As the company targets to ramp up capacity, targeting 1.3 GW total installed capacity by year-end 2023 (expansion of 1 GW) and >5 GW in 2025-2027, the company comments that more financing is needed

Quantafuel
CEO Lars Rosenløv
• Quantafuel is embarking on a large-scale global roll-out. The chemical recycling industry has grown from an entrepreneurial game to an industrial game. The objective for all players in the field is to scale up volume quickly, and Quantafuel is ready to scale
• The company reiterated that Skive has served its main purpose. The knowledge and learnings gathered during the Skive project are now the core of Quantafuel’s IP
• The company’s project in Dubai together with Dubal Holding and BASF will eventually provide scale when commissioned. The targeted timing of production starting in 2024 remains firm
• The technology licensing MoU with Saipem will also drive growth and scalability going forward while adding licensing to Quantafuel’s business model
• However, the company will remain a build, own, operate company with upstream integration through the sorting facility at Esbjerg, which is currently under construction
• After the launching of the Quantafuel MK II, the global roll-out can begin

See the previous post on this blog on my call with QFUEL that includes further updates

Hafnia Ltd. – CEO Mikael Skov
• Seeing a remarkably strong product tanker market, with strength across all basins and asset classes at present. Emphasized the stellar timing of its two recent acquisitions; the chemical tanker fleet of Oaktree (previous Navig8 Chemical Tankers) and the LR1 fleet from Scorpio
• Recently published a strong Q2 report, but says Q3 will be better – and that current runrate far exceeds analyst estimates. Q4 likely to be better than Q3 again – at least based on where the quarter is starting off. Highlights how we normally should see a strong winter market than where we are now
• Not at all seen the full effect of Russian cargoes diverted elsewhere yet – but that will be a major positive
• Supply-story positive, stated that ‘even if both Hafnia and our competitors wanted to build this market to pieces, we would not find the yard capacity to do so’
• Has an ‘at lest 50% of EPS’ policy, and does not want to be under-levered. As such, dividend pay-outs of more than 50% of earnings in the near future appears likely

Golar LNG – CEO Karl Staubo
• Golar highlighted how the company has transformed in recent years, selling assets for USD 6.8bn – and now remains solely focused on upstream FLNG units, where they can deliver cheap and reliable LNG production
• This leaves the company positioned to help solve the global energy crisis, with one operational FLNG unit, one under construction (86% complete) and several projects being discussed – backed by USD ~1.5bn in cash and listed securities
• CEO Staubo reiterated how Golar target to announce new FLNG projects within 2022 – and how the company with its net cash position and firm EBITDA generation with a large portion of the commodity upside hedged at firm levels, can execute 2 – 3 projects in parallel

Cool Company – CEO Richard Tyrrell
• CoolCo was spun out of Golar LNG earlier this year, and currently has a fleet of eight TFDE vessels built in 2013 – 14
• States that it is the last LNGC owner that actually has an available ship for the upcoming winter season, and the CEO was firm on his ambition to really take advantage of this position
• Will be a trade-off between spot and shorter/medium term TCs, they will have to evaluate the economics on a case by case basis. They have fixed to of their ships on 1Y TCs this year, at rates rising from USD 120,000 this spring to USD 140,000/day recently
• Perhaps a little surprisingly, they would not rule out newbuilding opportunities. Also has growth options through Quantum Pacific’s fleet of 2+2 modern LNG carriers that recently were taken over from a Sovecomflot-bank
• Also looking to improve its float and trading liquidity, a US listing seems likely

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.

We had a short call with QFUEL. Below is my summary:

• QFUEL has been working on remodeling all its lines so that all four lines could be all powered by gas generated in the chemical process. Until now only one line was running on self-produced gas, the other were run on electricity. That resulted in high energy costs. With the reactors powered by self produced gas, there will be substantial energy costs savings.
• QFUEL announced on Q2 call that the remodeling would take approximately two weeks and should be completed during September.
• QFUEL confirmed that Skive is in process of the upgrade and reconfirmed the completion within the September as guided.
• QFUEL also reconfirmed that during the Q3 Skive should be running on all four lines. Again this is very positive. Up to Skive was running on three lines. The running on all four lines will result in a greater efficiency of the production.
• Few weeks ago somebody posted in one of the QFUEL FB forums a Twitter post by QFUEL engineer that QFUEL is looking for electricity generators that can run on specialty gasses. That indicated, that QFUEL will be generating excess gas that they would use for electricity generation. QFUEL today reconfirmed that this is the case – QFUEL should generate more gas that they need to power their reactors. The surplus gas will be used for electricity generation. It is too early to quantify, but still a positive development.
• The company is also looking at creative ways to finance its capital expenditures. These may include a transaction at an individual project level – they could sell down part of their stake in a project to finance the whole operations. That has been announced before, just reconfirmed again. If that would be achieved, it would be very positive for the share price. QFUEL is working hard to achieve this.
• In summary, there should be several postivie announcements probably before the end of September:
  • Announcement that Skive is back in operations powered by self generated gas
  • Announcement the Fourth line is in operation – the full plant in full operation
  • Announcement the company produces excess gas that is used for electricity production

Other news

Mintra announced another contract win. We are bullish on Mintra – see our previous posts on this high beta play on Shipping and Energy.

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.

Putin has threatened to turn away from a deal agreed earlier this year that allowed the export of agricultural products from Ukraine’s Black Sea ports to resume. He called the deal Scam. “It may be worth considering how to limit (food exports) along this line” the Putin stated.

“UN data shows that from 87 cargoes, 57 went to non EU countries including China, Egypt, India, Iran, Lebanon and Turkey.” FT reported. Basically Putin is lying.

“Turkey’s president Recep Tayyip Erdoğan echoed Vladimir Putin’s criticism of a grain deal that he helped to broker between Moscow and Kyiv, as he vowed to discuss the issue with the Russian leader at an upcoming summit.” was the news on FT just a moment ago.

Ukraine forces seem to be advancing pushing Russian troops away from their territory. Russia called for UN security council meeting to stop arms exports to Ukraine two days ago. Strange act by an agresor.

We may see some actions from Russia against EU. Stoping grain export would cause food crises in poor countries, which would result in migrant exodus to the EU. That could destabilise EU political situation. My base case is that Russia will stop Ukraine sea grain exports. We bought Wheat ETF (ticker WEAT). The ETF is down 50% since the exports were restarted. This indicates the upside.

We remain long LNG tankers COOL and GLNG. They are the beneficiaries of the Russian gas blackmail. We are up 50% on the positions in a few months and believe in plenty further upside.

We remain long product tankers through HAFNIA. We increase our position today in the block trade and also bought more on today weakness. Russia is the major producer of diesel for Europe. The diesel will stop flowing from Russia in December. Product tankers should benefit.

We also bought Palladium producer Sybanie (SBSW). Russia is the major palladium producer. Russia is the worlds largest palladium producer with 25-30% market share. Palladium could be next in the Russian sanction list against the West.

We are long Norway gas production through Var Energi.

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.

On Friday Vicore presented its latest Covid results. “On coming Sunday, Vicore’s data was presented by key opinion leader Toby Maher, for the first time at a scientific congress. Therefore, we believe that many new eyes will learn about Vicore results” Pareto analyst says

Vicore is very cheap for what they are acheving. We are long before next week catalyst.

My summary of Pareto note

Continued unprecedented lung capacity increases in IPF patients

Vicore Pharma announced that it continues to observe the same unprecedented trend in idiopathic pulmonary fibrosis (IPF) patients treated with Vicore’s drug C21 (an angiotensin type 2 receptor agonist), as reported at the interim analysis in February 2022. Vicore specified that they continue to see first stabilization, followed by lung capacity increases from week 18 on to week 36 (the end of a patient’s study course in the phase 2 AIR trial) – and all that without any side effects. Pareto notes that no other drug, neither the two on the market from Boehringer Ingelheim and Roche, nor the several ones in development have reported data even close to that.  On Sunday, Vicore’s data was presented by key opinion leader Toby Maher, for the first time at a scientific congress. The data is presented directly after Boehringer Ingelheim presents data from their new drug BI 1015550 (a phosphodiesterase 4B inhibitor), which shows “the common” profile of IPF drugs. Pareto believes that many new eyes will learnt about Vicore and its differentiated approach – triggering regeneration vs. inhibiting one-three fibrotic factors which does not address the complexity of IPF and affects physiological process and thus has been both ineffective and toxic. Vicore further intends to release a bigger data set with graphs etc. by Q4 (we estimate in October, latest end of November). Pareto also expect the readout of the COVID-19 phase 3 trial in the coming two months. With these highly positive developments Paret reiterated Buy rating on VICO with a target price of SEK 97.

We wrote about Vicore last week on our blog.

We are long the following pharma stocks

Vicore, Biovica, Bioinvent, Calliditas, Sedana, Eiger and Ascelia. We have increased our position in Vicore and Calliditas in last two weeks.

Vicore and Bioinvent are included in Pareto Top 10 ideas from Sweeden for September. Coments from Pareto below:

Vicore Pharma – BUY, TP SEK 97
VICO is trading +110% YTD and is poised to continue much further in the coming month + Q4. Why? We expect (positive) major catalysts in September b g g V c ’ c c c m b (F) RCg Bc ( mb), Vc’ b
Boehringer Ingelheim (a large pharma competitor with, in our view, inferior data). We will follow the congress and update with our conclusions thereafter. Further, we expect data from a few more IPF patients, likely around the congress and possibly even more data a bit later (simply because the data becomes available from the open-label trial as time is passing). In addition, we expect the readout of the COVID-19 phase 3 study within September/October. Drug sales in IPF reached around USD 4 bn last year, comprised of two drugs, one from Roche (Esbriet) and one from Boehringer Ingelheim (Ofev). Despite the two drugs on the market, the median survival after diagnosis is 3- ( g g c g c ) V c ’ g,
first time ever, has shown gain in lung functions in IPF patients that reached the hundreds of millilitres / instead of short-mbz ccm Tccm bVc’g
February 2022 readout drug showed a lung function gain of +251mL at week 24 & +751 mL at week 36 – unprecedented and we believe this will soon be further reinforced.

Bioinvent – BUY, TP SEK 115
Closing Q2 with liquid funds of SEK 1.2 bn + SEK 536m from the Exelixis milestone payment and the latest directed issue to specialists like Forbion (so total of SEK 1.7 bn), BINV is among the best capitalized biotech companies in Europe backed by one of the best shareholder bases. After a series of positive clinical trial data in both liquid and solid tumours in 2021 and 2022, BioInvent is set to simply continue doing so in September. We expect a major catalyst for the month, with the most exciting (based on scientific rationale and in-vivo & human PK/PD data) program BI-1808 (TNFR2 targeting antibody) having its first safety and efficacy data (safety was confirmed in the Q2 report when scrolling to the program). Based on our scientific due diligence, we expect the program to have a high chance to show anti-tumor effects in the upcoming first glance at clinical data. Additional clinical data releases are likely around ASH conference in early December.

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.

Summary of Pareto note from Friday:

Imminent positive news

We expect operator Total to deliver the application for Production Right on Block 11B/12B shortly. This will be an important milestone for the development of the large resources, which with the fast-track development concept have potential to provide South Africa with much needed natural gas from 2026-27 onwards. In addition, the much-anticipated Gazania-1 well targeting >300 mmboe of unrisked resources will start drilling later this month with results expected in October. If successful, we think this can double Africa Energy’s share price while its existing discoveries provide support for the current valuation. BUY/TP SEK 4.5 reiterated  Application for Production Right on block 11B/12B by 6 September We expect operator Total to deliver an application for Production Right on Block 11B/12B (10% WI) offshore South Africa by the latest 6 September. This will officially take the project into the development stage and be a positive milestone. The partners have already stated the ambition of fast tracking the Phase 1 development by utilizing existing infrastructure, which also reduces costs and enables first gas by 2026-27. Importantly, there is existing demand in South Africa for the gas volumes implying that there should be limited third party risk related to build out of new infrastructure. The timing of the gas sales agreement is uncertain and will be the next significant milestone following the Production Right application. Exploration drilling at Gazania-1 to commence in late September Another key event near-term is the drilling of the Gazania-1 exploration well (27.5% WI) offshore South Africa, which is carried by the partners (zero costs to Africa Energy). The well is expected to spud in late September with results 25-30 days thereafter. The well will test two prospects and target a total of >300 mill boe of gross unrisked resources, but also smaller discoveries are expected to be commercial (threshold around 50 mill boe) due to a favorable operating conditions and fiscal terms. We estimate an unrisked value potential of SEK 2.5-3.0/share based on our long-term oil price assumptions of USD 70/bbl. BUY reiterated & Target Price SEK 4.50 We estimate Africa Energy’s NAV at SEK 5.7/share at USD 70/bbl Brent long term and a gas price of USD 6/MMbtu. Of this, existing discoveries and cash is valued at SEK 2.8/share. This implies a low valuation of the additional derisked potential at Block 11B/12B and the upcoming Gazania-1 exploration well, and/or a significant discount on the Phase 1 development that should narrow as the project progress. The company had USD 7.2m of cash at the end of Q2 and have had a low burn rate of USD 1.8m/quarter in H1’22. This implies that Africa Energy is financed well into 2023, providing time to deliver on the abovementioned milestones, and that a potential funding need should be limited (funding for 1 year equals less than 2% of the market cap). In addition, we highlight Africa Energy as an increasingly attractive acquisition target given the vastly improved attractiveness of gas resources over the last year. BUY/TP SEK 4.5 reiterated.

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.

QFUEL reported yesterday Q2. I found the presentation very good and recommend for watching see my yesterday post for the link. Pareto came up with bullish note on the report today. See the summary below

Exciting progression with Dubai and Saipem MoU

Quantafuel delivered a quarterly report containing some short-term disappointments, where the volume guiding for 2022 was suspended, but also promising outlook comments regarding pipeline projects and the technology licensing MoU with Saipem. Revenue and EBITDA missed expectations and came in at NOK 5m/-72m.  However, as the investor focus shifts from Skive to the other projects, especially the Dubai project and the new MoU with Saipem, we believe the business case will be less dependent on operational updates from Skive. We still foresee revenues of NOK 1.2bn/2.1b for 2025E/2026E with an EBITDA margin of 36%/46%. Buy TP NOK 17 reiterated.     Volume guiding suspended after a challenging quarter Due to high gas prices, Skive was running on negative gross margins in Q2’22, causing the production to lower volume intake of waste plastics to minimise losses. Hence, the revenues for the quarter came in at NOK 5m, lower than the NOK 13m for Q1’22.Instead of optimizing volume output, QFUEL prioritised testing hard-to-convert plastics to get the most data and information out of each dollar spent on opex. QFUEL is still confident that Skive will be CF positive by YE. Revenues estimate at Skive lowered, while the rest is intact For the remainder of the year, we expect Skive to be used for feedstock tests and data gathering, rather than proving ability to increase capacity utilisation. Hence, we push our capacity ramp-up estimates at Skive out in time, lowering revenues for 2022-2023E. Looking forward, the progress on the project pipeline provides comfort to our long-term estimates. The technologylicensing MoU with Saipem is especially exciting, as we believe the MoU will provide a foot in the door for QFUEL’s technology as Saipem can provide the performance guarantees required by oil majors for setting up plants in relation to existing oil refinery sites.However, we would like more details and firm agreements before including licensing and royalty revenues in our estimates. Promising outlook, with the Saipem MoU providing solid upside it has become clear that Skive will never become a fully functional commercial plant. As investor focus shifts operational updates from Skive, we expect the Dubai project and MoU with Saipem to drive the business case. The revenue potential from the MoU is not reflected in our valuation yet, but if the MoU develops into firm contracts, we see solid upside to current estimates. Our valuation is based on a DCF reaching steady state by 2026. Even though we expect the company to have a large capital need, we still see upside to the current price. Buy TP NOK 17.

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.

QFUEL presented Q2 this morning. The presentation focused on the project pipeline, that has moved significantly. The highlites were signing up Dubai plant with BASF as investor, progress in Sunderland and Esbjerg plants and new licensing agreement with Sapiem. Skive modification in Q3 will mean that Skive will be running on self produced gas on all lines. Both Skive and Kristianslund should be cash positive by the year end.

QFUEL is about future of plastic recycling. QFUEL should be European leader in chemical recycling of plastic. And QFUEL is delivering.

Link to the presentation https://channel.royalcast.com/hegnarmedia/#!/hegnarmedia/20220831_5

The brokers focused on preanounced cost increases driven mainly by higher energy costs. The most important is the progress. See below part of Qfuel comments:

Q2 2022 is characterised by significant achievements for Quantafuel. Quantafuel is confidently moving forward into the next phase; large-scale global implementation supported by strong and long-standing partners.

“The past quarter has been an important and eventful one for Quantafuel. We are moving forward into the next phase of our strategy and the commitment shown by key partners illustrates their support and confidence in Quantafuel becoming a frontrunner in the plastic recycling industry,” says CEO of Quantafuel, Lars Rosenløv.

One of the key milestones during the second quarter was the signing of the front-end engineering design (FEED) agreement for developing a Plastics-to-Liquid (PtL) processing plant in Dubai in cooperation with DUBAL Holding and our strategic partner BASF.

Furthermore, the recently announced agreement with Saipem, enables this top-five engineering major to globally market PtL plants under Quantafuel’s technology license. The agreement has added a new dimension to Quantafuel’s business model and provides even more flexibility and speed creating additional income streams over time.

Another important step in Quantafuel’s growth strategy was entering a joint venture with investment fund Eurazeo for our sorting facility in Esbjerg, Denmark. It is a game-changer for the plastic waste market in Denmark, and a prerequisite for the co-located large-scale PtL plant we are planning as a next strategic step in Esbjerg.

Quantafuel reported the completion of line three in the beginning of June, which also enabled the use of self-generated gas for reactor heating. This autumn, all four reactors at Skive will have the necessary equipment installed for heating with self-produced gas. With the current highly volatile and pricey European gas market, this is a significant contribution to our plant economics.

As reported in a press release on 5th July 2022, our Skive operation has been exposed to pressure on operating costs during Q1 and Q2. Key contracts have already been successfully addressed, improving the operational margin. Our efforts to counter cost increases along with the general drive to lower cost in Skive will continue and begin to show positive effects in Q3. At full production Skive will on a yearly basis deliver approximately NOK 70 million free cash flow based on current feedstock and offtake assumptions.

“Skive has been instrumental for where Quantafuel stands today. Our Mk II plants are built on all the key learnings from Skive combined with the long experience of our strategic partners. We are excited about the future,” says Rosenløv.

Please see the attached Q2 2022 report and Q2 2022 presentation for full financial figures, including details on Quantafuel’s operation and projects. Key highlights from the report:

– FEED agreement for PtL plant in Dubai signed with DUBAL Holding and BASF
– Quantafuel adds global licensing business model via Saipem cooperation
– Joint venture and financing for Esbjerg sorting plant signed with Eurazeo
– Three production lines operational in Skive
– Forecast positive cash flow from plants by year-end

Following Proof of Concept for the Skive plant, announced on 28 March 2022, Quantafuel Skive has been subject to a number of technical reviews and commercial invitations for the use of Quantafuel’s technology. The Skive project has total full capex of NOK 620 million. As significant part of Skive’s costs relates to the development cost of Quantafuel’s Intellectual Property, Quantafuel has reclassified NOK 163.6 million related to these developments from Property Plant and Equipment (PPE) to other intangible assets as per 30.06.22.

Day by day we are proving that we are in a good position to build a circular economy for plastics in Europe and beyond. The achievements reached the past quarter position us as a frontrunner and we have strong industrial and financial partners keen to take the next step with us.

Mintra news

We wrote here before Mintra, high beta play on shipping and energy sector. Mintra today announced another contract with oil major. We expect the trend to continue.

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.

Pareto issued an update on QFUEL this morning. See the summary below.

Quantafuel Joins forces with Saipem in the implementation of waste plastics recycling solutions

QFUEL announced signing of a MoU to collaborate with Saipem in the industrialization and construction of waste plastics chemical recycling plants. This positions Saipem to construct under QFUEL’s technology license in industrial plants specialised in pyrolysis, while QFUEL strengthens its project implementation capabilities and adds the licensing approach to its existing business plan, creating additional opportunities to commercialise its technologies.

Light at the end of the tunnel

Despite negative news flow regarding tight margins at Skive, we see the rest of the project pipeline progressing nicelyduring the quarter. A financial partner is secured for the Esbjerg sorting facility and a FEED agreement is signed for the Dubai PtL project. Due to operational hurdles, we lower our short-term estimates, but keep our long-term thesis unchanged. In sum, we decrease our TP to NOK 17 (19), while arguing that current price could be an attractive entry point considering the guided project economics for the pipeline plants. Buy reiterated.      An operationally challenging quarter, but pipeline projects progress nicely QFUEL will report its Q2’22 figures on 31 August. The quarter might have been a rough one, with pressure on operating costs at Skive due to sky high gas prices in combination with a fixed selling price contract with QFUEL’s offtake partner BASF. The margin squeeze is likely to have reduced the production output at Skive, which might threaten the company’s volume guiding of 6,000-8,000 tonnes for FY 2022E. However, we believe these are transient issues, as all reactors will be retrofitted during September and thereafter run on the pyrolysis gas which is currently not utilised. For Q2’22 we expect NOK 18/-50m in revenues/EBITDA. Gross margins increased and short-term revenue outlook lowered With the recent operational difficulties, we lower our revenue outlook for FY 2022-24E, as we acknowledge that the capacity expansions at Skive and Kristiansand might take longer than anticipated. For FY 2022E, we expect NOK 82m/-177m in revenues/EBITDA. We are however keeping our long-term view unchanged and expect the plastic to liquid projects in Dubai, Sunderland, Esbjerg and Amsterdam to come onstream during late 24E to late 25E. When all pipeline projects are completed, we eye NOK 2bn in revenues and NOK 1bn in EBTIDA for FY2026E.  Some short-term hurdles, but the story is still intact, Buy TP NOK 17 (19) Our valuation is based on a DCF reaching steady state after all the announced projects have come on stream by 2026. We apply a WACC of 9.5%, which one could argue is somewhat aggressive considering operational risk and technology risk remaining elevated. However, when taking the guided plant economics into account, in addition to favorable market conditions for petroleum alternatives, we believe it is fair. Even though we expect the company to have a large capital need, we still see upside to current market. Buy TP NOK 17 (19).