Last month’s listing started the firing pistol on what promises to be a busy and exciting 12 months for Proventus Renewables.
It hasn’t exactly taken the traditional route to the public market. It is quoted on GXG, the Danish junior bourse, and was born of a reverse takeover of PLUS-listed media group Captive Audience Display Solutions.
But then nothing Proventus has done thus far conforms to the stereo-type for a company operating in the alternative energy sector.
This very definitely is a positive. In an industry that has seen its fair share of disappointments it is refreshing to see a business with a clear and quick route to cash generative self-sufficiency.
And more to the point one that has found an innovative way to fund its ambitions.
You might think its current market capitalisation of £117 million adequately reflects this potential.
However, it might be worth considering the scale of its ambitions, or looking closely at the value of its current assets before passing judgment.
First the big picture. Proventus wants to be a diversified renewable energy development company active in wind, solar and geothermal energy sources.
The blue-sky target is eventually to have 1.5 gigawatts under management. Yes, that is a big target. However, its immediate aims are more modest - achievable, but still hugely value accretive.
It currently has two assets, both in Bulgaria. One is a 75 megawatt solar power project, the other, Dobrotich, is a 200 megawatt wind farm project.
It is the latter that will provide the near-term catalysts for growth.
The politics and the geography work well, with Bulgaria along with most of central Europe looking to cut its reliance on import of gas for electricity production.
Dobrotich’s proximity to cities such as Varna and Burgas on the Black Sea (Dobrich and Ruse in the northern part of the country) suggest a ready market for the electricity.
The value of the 3,600 hectare site is not its proposition per se (although there is more than enough wind to support the turbines).
It is the fact the land has been approved by the local authorities as a wind farm and crucially has a 15 year contract to supply the national grid.
These are two tangible and very valuable assets that are worth a significant sum already.
Based on deals done in Germany and Denmark, the fully permissioned site is currently worth anywhere between 220,000 euros and 450,000 euros per megawatt as it stands.
This is before the turbine begins turning.
Once operational, Dobrotich could be worth around 650,000 to 700,000 euros per megawatt installed – again using those German and Danish deals as the benchmark.
It is also predicted to generate carbon credits worth as much as 21 million euros.
There have been approaches for Dobrotich already.
But Proventus, led by Todor Todorov, is in for the longer haul.
And you can see why. A fully functioning wind farm becomes a cash machine, which could then be sold to say a pension fund looking for a steady cash return.
So at this point Dobrotich becomes a very, very valuable asset.
However, there is the small matter of turning what is currently a barren piece of land into a wind farm – and this requires money.
Dobrotich is being developed in two phases with the first 86 megawatts expected to be online by the end of the year, followed by the remainder in April next.
The company is confident it can deliver Dobrotich on time and to spec having recruited the team which developed St Nikola, Bulgaria’s largest wind farm.
It has also secured bank financing for the project, according to Proventus finance director Samrat Bhandari.
However, it is unlikely to go down this route given the payback is likely to be somewhere in the order of eight years, he said.
Instead it will look to lease the turbines, which alters the economics of Dobrotich, but not massively.
The leasing option negates the huge capital outlay of acquiring 32 wind turbines. And this is just for the first phase at Dobrotich.
“The manufacturers have over-capacity and are keen to have their wind turbines used. We have had meetings and we are confident this is a viable route,” said Bhandari.
“We have the option to take the traditional bank route but don’t want to take it. We are in discussions for project based strategic partnerships.
We have created options, and the board will decide shortly on what route to take.”
Proventus will also look to bring in an industry partner for up 20 per cent of the project, which will also ease any potential financial burden on the company and its investors.
There is also the potential to build a portfolio and the company is looking acquire projects.
In fact Bhandari reckons Proventus could realistically add a further 500 to 700 megawatts to its portfolio in very short order.
The deals will be done with a combination of cash and paper and could cost anywhere from 7 million euros at the low end of the scale to above 100 million euros.
“Because of the economic situation in Europe at this point in time there are lots of projects that have been started that can’t be completed as banks have pulled their hands back,” said Bhandari.
“This means these companies have been stuck with these projects. It also gives us a very good entre.
Would-be investors should bear in mind the shares are very tightly held (around 80 per cent are owned by management) and are traded on a tertiary market.
This means getting into and out of the stock is still quite tricky.
That said, there are plans for a main board listing on a major European bourse, according to Bhandari, which is set to coincide with the completion of the second phase of Dobrotich.
By that time it is hoped the group will have demonstrated its true value.
“In the next six months we should be completing the construction of the wind farms,” said Bhandari.
“All the permissions have been acquired; electrical connections and geological studies have also been completed and we have a grid agreement. Now we have to deliver.”