Investment Case Zazz Energy: Has left the starting blocks

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Investment case Zazz Energy 15 March 2022

Analysis Zazz Energy

The Greentech company Zazz Energy of Sweden AB (Zazz Energy or the company) ´s main business model is to finance and own facilities for the production and sale of green electricity. Today, the company have a 1MW-bio-oil plant in Greece that supplies green electricity on a 20-year agreement. The annual revenue from this delivery agreement is estimated at approximately SEK 14 million per year. The buyer is the state-owned electricity company HEDNO. The company´s second 1 MW bio plant (biomass) is under production and is expected to be connected to the electricity grid during the third quarter of 2022.

Recurring revenues and additional income streams

With long electricity supply agreements, the company receives recurring income. This type of income is extra valuable because it reduces risk with its predictability. At the new biomass plant, Zazz Energy will recover green heat energy as created at the plant. The heat is intended to be recovered to heat water. The produced hot water can thus contribute with a second revenue stream to an annual value of approximately SEK 3.5 million. As a second residual product, biochar is also created. This is very interesting given the biochar´s ability to bind carbon dioxide as well as the many application areas. Sales of biochar are thus a third revenue stream with a possible annual value of SEK 15 million.

Good timing as investors have regained interest in renewable energy

Energy prices are soaring, and in addition to the EU Green Deal, a plan will be developed to phase out Russian gas, oil and coal. We think it is very likely that renewables will also feature prominently in this plan, which should benefit companies like Zazz Energy. The stock market has also regained its interest in the sector. That iShares ETF, Global Clean Energy, has been up 11,1 per cent since mid-February 2022, while the broad Swedish index, OMXSPI, is down -8,7 per cent. See Appendix 1.

Good margin potential and large possible upside in the share

We expect that Zazz Energy can increase its connected capacity to 38 MW by the end of 2031. This would mean annual revenues at levels of SEK 750-800 million. We also expect the EBITDA margin to approach 40 per cent. These are high levels but still lower than many other players with similar business models. Given the uncertainty in
the assumed development for the company, we have adjusted the capacity building and thus revenues and costs with probabilities. By combining a DCF model with multiple valuation, a fair value per share of SEK 5.4 is calculated for the next 6-12 months.

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