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 project 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)… In spite of 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. MESH requires several hundred million pounds to build out the project and despite stating it has offers of private sector finance in place and doesn’t need government money, in the last webinar it was hinted that they are a likely candidate for funding via GB Energy and/or the National Wealth Fund.
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 in hell 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. This is not a project that will be calling on the illiquid AIM retail market for cash from here on.
Also, with reference to funding, the current £15m finance package will almost certainly 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. 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 as AIM is a small cap market not used to dealing with national grade infrastructure projects, and post crypto, investors are attuned to rapid returns.
With this in mind, I’ll ask one question… When CAPEX level funding arrives in the hundreds of millions will EPP still be valued at £20-25m? The answer is a categoric NO!
And based on the rapid rollout required of EPP by the government, the funding needs to land soon.
Regarding political risk… the offering is also diverse enough to be valuable to any government from Labour to Reform so it is in effect apolitical. Is Reform going to turn down homegrown North Sea gas, domestic graphite for defence and Ammonia for the farming community? No.
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 media coverage on a national tier one scale, this will rapidly depart the AIM retail zone and enter a different league. The question is, when will this be recognised by AIM investors?
Having been an investor in EPP for nearly two years, and with recent regulatory approvals, I feel comfortable saying: it’s the one stock that I think will create generational wealth for investors.
However, there seems to be a disconnect in the understanding of how national infrastructure projects like MESH accrue value over the course of their de risking journey and it differs massively from small cap stocks in other sectors. EPP now have key regulatory approvals in place, tier 1 partnerships, constructive government engagement and local authority/infrastructure support from the NW community. The Next Step is project level funding that goes beyond FID and will facilitate the build out of this hugely impressive energy storage project.
Of course DYOR 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
