Helius Energy (LON:HEGY) is a credible play on biomass energy development and its shares have been overlooked by investors, says Numis Securities analyst Will Wallis.
The analyst initiated his coverage on Helius with a ‘buy’ rating and a 41 pence per share, sum-of-parts valuation for the company.
In a note entitled ‘Bright Spark’ the analyst said that Helius has a very solid track record in the development of biomass power stations in the UK.
“The shares appear to have been overlooked, trading on a 25% discount to NAV despite strong historic value creation and, we think, good prospects for significant further value-added,” Wallis said.
“Improvements in the UK support regime for biomass made in 2009 should in our view encourage development of biomass into a meaningful part of the UK energy mix”.
“We think there is a significant opportunity for project developers.”
“Our base case valuation is 41p per share (+62%), with substantial further potential in an upside scenario.”
The analyst highlighted that Helius banked a £32 million profit on the sale of the 65 megawatt Stallingborough project in 2008, and it is now developing projects at Avonmouth (100 megawatts) and Rothes (7 megawatts). It also announced plans for a 100 megawatt project in Southampton recently.
“While there are a number of competitors looking to develop biomass power stations in the UK, we think that Helius has developed and earned a good reputation in the industry.”
“Helius can continue with a strategy of selling projects at the pre-construction stage, or could look to raise part or all the equity required to build projects thus looking to retain a greater proportion of project NPV,” Wallis added.
“We expect further early-stage projects to be announced in due course.”