Research Update Zazz Energy Q1 2023: Potential reward for risk-willing investors
15 May 2023
Read the full research update here:
Research update Zazz Energy, Q1 2023
2023 has been challenging for Zazz Energy, as the production stoppage persists, leading to no revenue generation. However, the company has announced an agreement in principle in early May to restart the Amfilochia plant with the aim of resuming operations by June 30. Nonetheless, the lack of a formal agreement means that the operational risk for the company continues. Accordingly, we have upheld the motivated value per share from the previous update at SEK 0.5 (0.5).
Continued halts in production, delays, and management changes
As of May 11, 2023, the company’s Greek plant continues to experience a production halt due to the non-delivery of bio-oil from the partner NAIS. While Zazz Energy has previously received compensation for lost income, no compensation was provided during Q1 2023. Although an agreement in principle has been reached regarding the plant’s restart, a formal agreement has yet to be signed. The company and NAIS intend to finalize a formal agreement by the end of May or early June, with the goal of resuming operations at the facility no later than June 30.
Upon the plant’s restart in Amfilochia, Zazz Energy will once again generate annual revenue of up to SEK 20 million from the sale of green electricity. However, this restart necessitates an investment of approximately SEK 6 million. The purpose of this investment is to enhance the plant’s efficiency in consuming bio-oil and reduce associated costs. The recently closed rights issue, amounting to approximately SEK 26.4 million, enables the company to repay short-term loan financing, strengthen its working capital, and partially fund the required facilities and infrastructure. We anticipate that the investment in the Amfilochia plant will be financed using the funds raised from this rights issue.
The two projects initiated in November 2022, Patras 1 and 2, with a combined capacity of 2MW, are now projected to be commissioned by the end of 2023 or early 2024, which is later than the initial announcement. However, the company has disclosed that one of the projects may experience a slight delay, contingent upon project financing and securing the necessary permits.
Adjusted assumptions & potential in high-risk stock under pressure
In our research update from April 2023, we lowered the probabilities of scaling up connected capacity. This was due to significantly increased uncertainty and risk around the company. This led to a reduction in assumed and risk-adjusted revenues and a shift in our revenue and profitability assumptions. In our April scenario, the completion of the issue and the restart of production were fundamental triggers for our motivated value per share. As mentioned, the share issue is now on its way to completion, while the company should be able to reach a formal agreement to restart the Amfilochia plant. However, we believe there is still a risk that the restart will be delayed, so our assumptions remain until a formal agreement is signed.
By combining a multiple valuation with a DCF valuation, we estimate a fair value of SEK 0.5 (0.5) per share. Our valuation range corresponds to EV/Sales 2023 of 14.1x and 5.0x in 2024. The reference group median for EV/Sales 2023 is 6.2x.plant.
Disclaimer
Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, conducts business with regard to Corporate Finance and Equity Research in which areas it, among other things, publishes information about companies including analyses. The information has been compiled from sources that Carlsquare considers to be reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be regarded as a recommendation or invitation to invest in any financial instrument, option or the like. Opinions and conclusions expressed in the analysis are intended only for the recipient.
The content may not be copied, reproduced or distributed to another person without the written approval of Carlsquare. Carlsquare shall not be held responsible for any direct or indirect damage caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments provide opportunities for value increases and profits. All such investments are also subject to risks. Risks vary between different types of financial instruments and combinations of these. Historical returns should not be considered as an indication of future returns.
The analysis is not directed to U.S. persons (as defined in Regulation S of the United States Securities Act and interpreted in the United States Investment Company Act 1940) nor may it be disseminated to such persons. The analysis is also not directed to such natural and legal persons where the distribution of the analysis to such persons would result in or entail a risk of a violation of Swedish or foreign law or constitution.
The analysis is a so-called Commissioned Research Report where the analysed Company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for a usual fixed remuneration.
Carlsquare may or may not have a financial interest in the subject of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.
The analyst Christopher Solbakke and Markus Augustsson does not own and is not allowed to own shares in the Company analysed.