Imagine this: A UK small-cap company with an energy storage project in a safe jurisdiction, deemed “Nationally Significant” by the Secretary of State, awarded a vital gas storage license by the NSTA, partnered with Siemens Energy, Wood and Costain and signing port deals with the Association of British Ports.
They’re set to build the largest energy storage facility in the UK and the largest CAES project in the world at a time of critical demand, they’ve just released figures (corroborated by Siemens Energy) projecting a NPV8 of over a billion pounds for a modest proportion of their revenue streams and last week they met with government bodies at Number 10, DESNZ and the Department of Business and Trade (as well as global financial institutions/banks)… Despite this, they’re valued at a mere £21m market cap… Why?
Well, there are 2 primary reasons, and I’ll address them separately in the coming paragraphs.
First is funding, and what seems to be spooking investors is the risk of a capital raise. So, let’s just put that to bed once and for all. At a sub £25m mcap there is no way on earth that an AIM retail cash raise will deliver even 1% of the CAPEX needed to build MESH, so in terms of funding, with regulatory approvals now in place, think global financial institutions, banks and government investment. In my opinion, this is not a company that will be calling on the illiquid AIM retail market for cash from here on in.
MESH requires significant CAPEX to build out the project and has stated it has had constructive talks with private sector finance providers and needs little or no government money; however, MESH fits perfectly with the key investment priorities of both GB Energy (LDES) and the National Wealth Fund (Infrastructure and Critical Minerals), so perhaps this is another potential route for funding.
Also, with reference to funding, the current £15m finance package, one would think, would become obsolete once strategic funding is announced. In my opinion, based on the funding/drawdown RNS, liquid cash reserves were required to advance initial work programs to satisfy the NSTA in order to obtain license approvals. So potentially, once project-level finance is announced: goodbye £15m facility.
The second issue is timeframe. With an FID of 2028 and project rollout in 2031, investors seem to think that until first revenues are delivered the valuation of the company will stay the same as now. It’s a bizarre outlook to have in terms of investment, but I understand this viewpoint as AIM is a small-cap market not used to dealing with national-grade infrastructure projects like MESH, and post-crypto, investors are attuned to rapid returns.
With this in mind, I’ll ask one question… When project funding arrives, will EPP still be valued at £20-25m? The answer is a categoric NO!
And based on the fact that the country is in dire need of energy storage solutions like MESH, the funding needs to land soon.
One thing I will touch on briefly that also seems to be a concern for investors is political risk… the MESH revenue offering appears to be diverse enough to be valuable to any government from Labour to Reform, so it is in effect apolitical.
For Labour, “MESH will make renewables work” and will potentially save the government and consumer billpayers significant sums in wind curtailment costs. On the other hand, should a new administration be voted in and take a different view on renewable power and stop all new wind farms, what would happen then?
With no new wind power development, the North Sea would still have the vast existing cohort of wind farms in place, and with an average lifespan of 15 years, mitigating wind curtailment and ensuring grid resilience will continue to be a priority. Also, would a new administration really turn their noses up at MESH’s homegrown North Sea gas storage, domestic graphite for defence and nuclear applications and Ammonia for the farming community? Certainly not.
There seems to be a disconnect in the understanding of how national infrastructure projects like MESH will accrue value over the course of their de-risking journey and that journey differs massively from small-cap stocks in other sectors. EPP are valued as a start-up, when actually they now have key regulatory approvals in place, tier 1 partnerships, solid NPV figures, constructive government engagement and local authority/infrastructure support. The next step is project-level funding that goes beyond FID and will facilitate the build-out of this hugely impressive energy storage project.
With a project forecasting 20-25% annual yields over a lifespan of 30 years, potential government-backed revenues in the hundreds of millions via OFGEM’s cap and floor scheme and likely media coverage on a national tier one scale, this stock should rapidly depart the AIM retail zone and enter a different league. The question is, when will this be recognised by AIM investors?
Of course, please do your own research and read back through the past year’s RNS’s carefully and scour the new corporate investor presentation (link below), as it’s in the detail that the real value proposition of MESH is clear.
Link to Corporate Presentation: Here
