Windar Photonics – getting blown away

Windar Photonics is in the right place at the right time, and the shares look cheap, writes Mark Watson-Mitchell.

It is on clear summer days, when taking my cocker spaniel for his morning constitutional, that I cannot fail to notice the growing number of wind turbines out on the North Sea Coast.

I am sure that they are growing apace all around the UK coastline – and it is much needed.

An explosion of wind

According to the Brussels-based Global Wind Energy Council (GWEC), 2020 was a record year for the global wind power industry despite the impact of COVID-19, but it states that we are still falling short of meeting the world’s climate targets.

The world needs to be installing an average of 180 GW of new wind energy every year to limit global warming to well below 2°C above pre-industrial levels. 

Furthermore, we will need to install up to 280 GW annually from 2030 onwards to maintain a pathwaycompliant with meeting net zero by 2050.

Today, there is now 743 GW of wind power capacity worldwide, helping to avoid over 1.1bn tonnes of CO₂emissions globally – equivalent to the annual carbon emissions of South America.

Massive demand for more efficient wind turbines

The GWEC considers that the world needs to install wind power three times faster over the next decade, just in order to stay on a net zero pathway and avoid the worst effects of climate change.

The UK is the global leader in offshore wind, with more installed capacity than any other country. Offshore wind, which powers the equivalent of 4.5m homes​, is fast becoming a very important and rapidly expanding sector.

By the end of last month, the UK had 10,961 wind turbines with a total installed capacity of over 24.1 gigawatts, comprising 13.7GW of onshore capacity and 10.4GW of offshore capacity, the sixth largest capacity of any country in 2019.

Wind is outpacing fossil fuel

Recently The Guardian reported that, “an independent climate thinktank, Ember, said that the UK’s renewable electricity outpaced its fossil fuel generation for the first time last year and could remain the largest source of electricity in the future. It revealed that renewable energy generated by wind, sunlight, water and wood made up 42% of the UK’s electricity last year compared with 41% generated from gas and coal plants together.”

The massive growth of the wind power sector over the next decade or so will really help to generate big sales and profits for today’s profile company Windar Photonics (LON:WPHO).

Through its subsidiaries, it develops and sells light detection and ranging sensors (LiDAR), and associated products for use on electricity-generating wind turbines. 

LiDAR wind sensors are used to remotely measure wind speed and direction.

It is all about the yaw

A wind turbine is said to have a yaw error if its rotor is not aligned to the wind. That would imply that it is not operating at peak efficiency, passing a lower share of the energy in the wind through to the rotor area. 

Such an error would also increase strain on the turbine’s vital components and reduce the lifespan of the machine.

Windar makes turbines more efficient

Windar offers its cost efficient and innovative WindEYE and WindVISION sensors, which measure wind speed by scanning a laser beam ahead of the wind turbines. 

The company also provides WindTIMIZER for wind turbine’s controller; and retrofit control systems for wind turbines. 

Windar’s kits are said to increase the power output of a turbine by up to 3%, while reducing equipment strain by 14%.

It serves original equipment manufacturers, independent power producers, and wind park operators in Europe, China, and Asia. 

Very involved and well invested management

The company which floated in 2015, has offices in London but is operated through its base in Denmark.

Some 55% of the group’s 54,595,524 shares in issue are owned by the directors and management along with other Danish holders. However, the UK’s Artemis Investment Management holds 3.21% of the equity.

New expansion to activities

On Monday of this week, the company announced that it had entered into a new four-year development project focused on developing a drone-based emission detection system.

The group’s broker Cenkos Securities reckons that the new gas sensing equipment demonstrates that Windar’s technology has applications beyond wind sensing for retrofit and OEM turbines.

The market potential for tracking the impact of green initiatives will gain importance and value as an investment in energy transition and the minimising of the impact of climate change picks up pace.

Bullish broker estimates going forward

The broker’s analyst John-Marc Bunce estimates that the current year, to end-June, will see revenues almost triple to £3.7m (£1.3m) while last year’s pre-tax loss of £1.5m will swing to a £0.3m pre-tax profit, worth 0.6p a share in earnings.

For the coming year to end-June 2022 he sees £6.7m revenues and £1.6m adjusted pre-tax profits, jacking earnings up to 3.2p per share.

My View

The £16m capitalised group’s shares, which touched 150p in 2015 shortly after their IPO, were down to 10p each just six months ago. However, today they stand at 29.5p, having shown some recovery on recent positive news.

Considering the broker’s bullish estimates, I believe that this early-stage but fast-developing company’s shares are very undervalued.

I see them easily going again up through their peak of 53p achieved over the last year – which would be a significant 80% gain.

Ahead of the group announcing its closing trading update for the current year to the end of this month, I now cautiously place a target price of 38p on the shares.