Powerhouse Energy (PHE) has provided an interesting update, which would see the company merge with Waste2Tricity Ltd and address one reason I called this a Sell back in August. I posed a number of questions about the Powerhouse investment case back then – including that I could not see what the business case was for the relationship with Waste2Tricity acting as the middleman in the development of projects funded by the partner of real substance in the schemes, Peel Environmental. Fundamentally, I could not see with clarity what revenue Powerhouse as the technology supplier obtained from any project funded by Peel. What was Waste2Tricity’s slice as the project manager / facilitator would obtain? A classic case of one too many figures in the pie for my liking.
An RNS on 23rd December outlines a proposal for Powerhouse to merge with Waste2Tricity. This will see far better clarity to the relationship with Peel and the resulting income split between land owner and project infrastructure provider and project technology and process provider. The payments to Powerhouse will accrue without the middleman’s cut. So that’s good for clarity at least. But what is the expected revenue magnitude and timing from this first project and subsequent schemes? What is the ability of this company to generate revenue and profits to justify its market cap and what is the timing of this? We are also told the Protos Energy Park, which is the lead scheme with Peel to commercialise Powerhouse waste to power and hydrogen technology, is progressing towards a planning decision. I have reviewed, in outline, this application and to me it seemed well constructed and presented. I can see no material reason the outcome will not be positive. I also questioned previously the lack of clarity in the Intellectual Property side of the investment case. Fundamentally, Powerhouse claims to have a means of producing hydrogen & power which others do not. In order to provide long term investment case positives, this needs IP protection to have real meaning. I respect and accept the word of a very well-placed source on this point – I am assured this is both recognised by the company and is in hand. I will be reviewing the detail in due course. So that’s all good news on an operational basis, clarifying the positive side of the investment case. But as good as the operational side of the business is, I now turn to the negative side.
When I first commented the market cap was some £8 million. It sits today higher, having risen from some £5.2 million only a few weeks back. The proposal is for Waste2Tricity shareholders to have 40% of the combined equity. That is very significant dilution for existing Powerhouse shareholders. We only have limited information on Waste2Tricity, but the accounts filed on 15th November 2019, show a positive current assets position of £158,763 but overall equity positon of minus £371,237. This includes a long term creditor of £530,000 – we are not told who this is due to. I have to ask just what does Waste2Tricity bring to the Powerhouse party? It claims to have presence in the Waste to Energy business in Thailand and Japan as well as UK – but no projects that I can identify that have revenue or near term prospect of such. I am active in the UK Waste to Energy sector in the UK – Waste2Tricity is not a name I have come across. It does have a board with experience and connections, headed by Tim Yeo, the disgraced on a number of counts ex Conservative Minister. But does this justify 40% of the combined business? I think based on evidence to hand, it is far from worth that. For a further twist, I met Zak Mir last year – he handed me a Waste2Tricity business card in his name! Um .. interesting! Perhaps Zak could clarify any ongoing involvement PDQ?
The company has settled fees over recent months by issuing shares. It talks about Peel funding project costs, but I fail to see how this adds to available funds at the corporate level. My assessment remains this company has little cash, and with a year-end of 31st December, the company will need to raise cash prior to audit report date at the very latest. Much sooner would be more likely in my view. This will only add to current shareholder dilution and share price depression. I could not see value here at a market cap of £8 million. I certainly do not at the current share price post deal. I do see a positive material change to the investment case with this proposed deal, and can see very good reason why this deal makes sense. In my view, this combination of businesses is a necessity for Powerhouse to move forward with any semblance of a positive investment case. But despite this, it currently looks very overvalued. Perhaps by this time next year a change in market cap and project progress will enable a different view to be taken of the equity value. Currently I do not see this as a zero in 2020, but evidence dictates a SELL conclusion from me for the time being.
Filed under: Powerhouse Energy, BigDish, ShareProphets share tips of the year, URU Metals, Ingenta
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