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JEV: First Boiler Order; Increasing Target Price

What you need to know:
• JEV announced its first boiler sales order which will support a district heating system of a prominent university.
• Jericho announced last week that it is conducting a DCC boiler decarbonization study with a leading global alcoholic beverage company.
• We are increasing our target price based on strong execution on the Hydrogen Technologies side as well as increasing oil prices.

This morning, Jericho Energy Ventures Inc. (JEV:TSXV, OTC:JROOF) announced that it has signed its first boiler sales order with a prominent Western University to support its district heating system. Additionally, last week, JEV announced a collaboration with a leading alcoholic beverage company to conduct a study using the DCC boiler. We are maintaining our BUY rating and increasing our target price to C$0.50/share (previously C$0.40/share) on JEV.

First Boiler Order
An unnamed prominent Western University has elected to adopt HT’s DCC steam boiler for deployment within the university’s district heat system. The solution will provide sustainable and low-carbon heating to the university, assisting in its decarbonization goals and setting a precent for other institutions to follow. This represents JEV’s first boiler sale, which we originally anticipated would come later this year and positions JEV as a key industry leader and first mover in its category. Management also stated that 1,173 universities and colleges across the world have plans to reduce emissions by 2030 and reach net-zero by 2050, providing ample opportunities for HT to expand into. Furthermore, the global district heat industry is estimated to do $198B in 2023 sales (Source: Future Market Insights), adding to the massive TAM for Hydrogen Technologies.

Four Country Study with Global Beverage Company
Only July 27th, JEV announced a collaboration with a leading global alcoholic beverage company to conduct a decarbonization study for the DCC boiler. The boilers will be implemented across the beverage company’s production facilities spanning four countries. Decarbonization remains a pressing issue in the beverage industry and plays into JEV & HT’s value proposition. JEV has 30+ ongoing studies with potential clients at the moment, many of which are moving towards orders.

Hydrogen Hub Government Funding
Rystad Energy, an energy research and intelligence firm reported which ten U.S. hydrogen hubs are most likely to receive the $7B in funding from the DOE (read here). This included the HALO Hydrogen Hub as #2, which plans to include the DCC boiler in partnership with one of the largest food companies in the U.S. Other stakeholders in HALO include Shell, Baker Hughes, Halliburton, NextEra, and GE.

Valuation – Increasing Target Price
Given the ~15% move in crude oil prices and ~10% move in the XLE over the last month, we are increasing our PV-10 estimate of JEV’s JV assets as well as our modelled oil price going forward ($80/bbl). We now value Jericho’s O&G assets at $50.3M and continue to apply a 0.7x multiple ($0.14/share valuation).

Furthermore, given the signing of its first boiler contract ahead of schedule and interest from leading multinational firms, we are increasing our multiple on HT to 4.5x 2025E sales (previously 4.0x), increasing our valuation of HT to $47M ($0.19/share). We expect JEV to build on this momentum and continue to sign boiler contracts over the coming quarters. Adjusting for JEV’s minority investments (at cost) and net debt, we land on our C$0.50/share target (previously C$0.40/share).