MAST IPO valuation disconnect reveals hidden value in Corcel
The way the UK generates its power is changing rapidly at present. The shift from fossil fuel plants to a lower carbon generation model is creating huge opportunities for the supply of continuous uninterrupted supply of base load electricity as well as trading electricity and capturing attractive spreads, all of which is being addressed by a number of UK companies.
One such company is MAST Energy Developments, a subsidiary of Kibo Energy, which is set to IPO on Wednesday 14th April with a £23m market cap. MAST has a portfolio of small-scale ‘Reserve Power’ generation assets that use low carbon sustainable gas, with their initial focus on the Bordesley site, near Birmingham. Once listed, MAST plans to develop at scale and pace, rather than on a project-by-project basis, and implies a larger portfolio is being prepared.
Currently MAST has a c.5 MW immediate production capacity, with plans to move to c.20 MW in production capacity within the first six months of listing followed by another c.20 MW in production capacity over the subsequent six months.
Surprisingly the considerable interest in the MAST IPO hasn’t, as of yet, definitively spread across to other companies in the sector. London-listed Corcel Plc (LON: CRCL) is already a key player in providing flexible grid solutions (FGS) to the UK grid as it transitions from coal/nuclear generated power to renewables backed by energy storage and gas peaking assets. The company’s initial 100MW energy storage at Burwell near Cambridge is already fairly advanced, and is strongly backed by a pipeline of additional projects in the space as well as strategic partnerships.
MAST is raising in excess of £5 million at IPO, more than the recent market cap of Corcel, to fund its expansion in the flexible energy sector. Yet the company is coming to market with what appears to be between just 5MW and 20MW of project capacity, compared to Corcel’s existing 100MW project at Burwell and their publicly stated efforts to assemble a pipeline of additional MWs and subsequent projects.
In addition to Burwell and its associated strategic partnerships, the Company’s foundation is its Mambare nickel laterite project in Papua New Guinea, which it has been developing for a number of years. This asset underpinned a historic valuation of over £40m at once stage, but with nickel having been out of favour, there was little activity. Nonetheless, with global interest in nickel reaching new highs, there is renewed interest in assets such as Mambare, with the project JV now moving aggressively forward towards a mining lease and looking to fill increasing demand for nickel use in batteries. For an asset that has been recently ignored by the markets, the upside here is significant and the timing appears very good.
Corcel also has exposure to a second nickel/cobalt interest at Wowo Gap, located 250km from Mambare and owned by Resource Mining Corporation (RMI). Corcel owns a A$4.76m senior debt position in RMI which is repayable within the next 12 months. The strategy here has been to take the initial debt position and then negotiate a transaction for the WoWo asset itself, doubling Corcel’s nickel/cobalt exposure at a very attractive entry price. Signfiicantly, RMI has also announced the acquisition of a second nickel project in Africa, which appears to provide a compelling backdrop for RMI to settle its Corcel debt via a project for debt swap. At a stroke, this move will make Corcel a major regional nickel player in Australasia.
Valuations per MW for MAST range from £3.6 million (5MW) to £0.9 million (20MW). Even taking the lowest figure and discounting it by 50%, to remain conservative, the Burwell project alone looks to be worth well over £40m to Corcel’s valuation.
Corcel raised £300k in February and at the same time put in place a debt facility, so appears to have no imminent cash requirement. With 321,381,614 shares in issue, if Corcel were valued in the same way as MAST, based on the most conservative estimate for MAST having control of 20MW of flexible assets, Corcel would immediately be valued at 18p. The math for a comparative valuation assuming MAST has only really secured its initial 5MW, Bordesley project, (and with the rest considered ‘pipeline projects’) isn’t hard to do, and would push Corcel’s valuation into the triple digits and the share price north of 60p.
And to remind again, this valuation analysis for Corcel does not take into account any allocation for the Mambare or Wowo Gap nickel / cobalt assets. Valuation disconnect perhaps? Likely not for long!