Small Cap Catch-Up: Local Waste And Digital Security

EQTEC – Global Technology Innovator Raises £3.5m For Progressing Its Exciting MDC Programme

Creating clean energy through sourcing local waste is what EQTEC (LON:EQT) is all about.

It has recently announced that its first Market Development Centre has gone operational.

The global technology innovator powering distributed, decarbonised, new energy infrastructure through its waste-to-value solutions for hydrogen, biofuels, and energy generation, has started to operate the first of its planned MDC’s.

The company yesterday announced plans to raise £3.5m @ 0.22p a share with the funds to be used for progressing MDC programme, aimed at maintaining business continuity and driving new Research & Development.

CEO David Palumbo stated that:

“This targeted Placing is focused on supporting strategic execution in 2023.

With the Italia MDC now operational, we have turned our attention to Croatia and France, growing our portfolio of well-established and highly credible partners who are developing projects and deploying EQTEC’s Industrial, Utility and Municipal business solutions.

Demand remains strong, and focused execution remains imperative in the current, uncertain market.

We look forward to updating shareholders as our solutions and brand gain global traction and the business grows accordingly.”

Market Development Centres

The initial centre is EQTEC Italia MDC, which is a company registered in Italy for the purpose of transforming agricultural and forestry waste into electrical power and biochar in a relatively remote and heavily agrarian community.

The company currently owns 19.99% of Italia MDC, with an option to acquire further equity in the future.

Italia MDC owns and operates a 1.1 MWe plant in Gallina, a village near Castiglione d’Orcia in Tuscany’s Val d’Orcia, an area considered to be the region’s most scenic. 

MDCs are reference plants that demonstrate EQTEC technology in live, commercial environments, with application of EQTEC’s versatile syngas to one of four, target solution models: Industrial; Utility; Municipal; or Agricultural.

The Italia MDC is focused on the Agricultural solution model, which demonstrates the potential for smaller-scale, autonomous plants in remote areas to convert agricultural and forestry biomass into value for the local community.

Initially, the Plant is converting higher-density wood waste into electrical power for export to the national grid, for which a connection has been secured with a preferential tariff.

In addition to the electricity, the Plant is producing biochar for purchase by two European wholesalers of the product. Thermal energy produced through the continuous EQTEC thermochemical conversion process is being recycled to dry the feedstock, improving the Plant’s waste-to-energy conversion efficiency.

Broker’s Views – Heading For Very Big Profits In 2024

Analysts Adam Forsyth and Max Campbell at Longspur Research have estimates for the year to end December 2022 for revenues of €39.32m (€5.52m) helping the company to turn €3.29m (€5.24m loss) of pre-tax profits.

For the 2023 year they go for €72.16m sales and €8.46m profits.

Then looking further ahead Larkspur estimates $113.18m sales in 2024, producing $21.44m profits, worth 0.2c per share in earnings.

While over at Zeus Capital their analyst Daniel Slater has a positive outlook on the group’s shares and estimates that they have a discounted cash flow valuation of 3.7p.

He goes for €24.7m sales for the current year, with an adjusted loss before tax of €0.1m.

My View – Medium-Term 1p

It is suggested that the Italia MDC will be a profitable, commercial-scale facility that will be creating an important role in the local agricultural community – and a pilot for other such MDC’s being considered in Belise, Croatia and in Eastern France.

The £19.5m capitalised group’s shares, which were up to 1.18p each a year ago, are currently trading at just 0.205p having fallen 27% on the Placing news.

A medium-term uplift back above the 1p level is more than possible as the good news continues about its process of moving to a licensing model.

The last time I featured this company I was far too early in its development stage and set a price objective way too high, but that is in retrospect.

I now set an easier Target Price for 2023 at 0.35p.

(Profile 08.02.21 @ 2.2p set a Target Price of 3p)

Kape Technologies – Management Hand-Tied But You Cannot Blame Him!

Over the last six years or so the Management of Kape Technologies (LON:KAPE) has driven the group’s growth impressively.

A string of strategic acquisitions has helped to build up a business that is an established player in the digital security and privacy space. 

Inside the last six and a half years, the group, which started with no subscribers, now has over 7.4m paying customers spread globally.

The group is a leading ‘privacy-first’ digital security software provider to consumers. Through its range of products, it focuses on protecting consumers and their personal data as they go about their daily digital lives.

The company is supported by a team of over 1,400 people spread across ten locations worldwide.

Six Years At Double Digit Growth

It now has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages its digital marketing expertise.

Through its subscription-based platform, it has fast established a highly scalable ‘software as a service’ operating model, which is geared towards capitalising on the vast global consumer digital privacy market.

They Were A Record Set Of Figures.

Yesterday morning the £1.23bn capitalised company announced its full year results for the twelve months to end December 2022.

Revenues were up 170.3% at $623.5m ($230.7m), while its adjusted EBITDA was 125.6% better at $176.0m ($78.0m).

I was impressed by the very strong showing of its annual recurring revenue at 86.8%, while its cash generation increased 275.1% at $165.5m.

The group’s profit after tax was 203.2% up at $70.9m ($23.4m).

The big lift in the last year came from the integration of the ExpressVPN, which accelerated growth and group capabilities.

CEO Ido Erlichman stated that:

“Kape delivered an outstanding performance in 2022, delivering our strongest year to date.

Over 7.4 million paying subscribers globally now consider Kape their company of choice in the digital privacy and security space, up 12% from the previous year.

The need for greater digital privacy and security has been key, as more and more individuals are recognising Kape’s brands as household names in the digital privacy arena.

Kape has delivered consistent profitable growth, executing on our strategic objectives year over year for six years in a row. We believe we are in a perfect position to capitalise on the growing demand in the markets in which we operate, through organic growth and strategic M&A activity.”

Broker’s View – Undervalued Relative To Historic Multiples

Analyst Martin O’Sullivan at Shore Capital estimates that the current year to end December 2023 could see the group produce sales of $697.3m, upon which it could see EBITDA of $191.0m and an adjusted pre-tax profit of $173.5m, worth 38.6c per share in earnings.

My View – Teddy Will Come Back With A Higher Offer

Billionaire Teddy Sagi, through his Isle of Man company Unikmind, has offered around 288p a share for Kape’s equity. He already controls 54.24% of the group’s shares. His first approach was last December at some 260p a share, which was spurned by the Management.

I think that he knows just how good Kape is as a ‘money machine’ and that he will come back with another offer.

The shares which were 430p this time last year, are currently 288p in the market but I would not be surprised to see another bid at around 325p.

If that gets rejected then Sagi could well look to delist the shares, making them more difficult to trade.

(Profile 21.12.20 @ 172p set a Target Price at 215p*)

(Profile 01.11.21 @ 402.5p set a Target Price at 600p)

(Asterisks * denote that Target Prices have been achieved since Profile publication)