Landmark contract with Shell
| 12 months ago, US heavyweight Jabil (8.1% shareholder in Flowgroup) agreed to manufacture up to 500,000 of the firm's revolutionary mCHP boilers; while separately two tier-1 overseas utilities (1 in Europe plus NRG Energy in North America) will soon begin testing these reconfigured devices. Today, Shell Energy Europe was added this prestigious partner list. Under a mutually beneficial deal, Shell will provide Flow's energy supply division (FEL) with wholesale gas/electricity on extended credit terms for the next 5 years (with an option for a further 3 dependent on volumes). Very encouraging news since: it should immediately release around £7m of restricted cash; it will enable FEL to expand its customer base aggressively; and many of these households could eventually become buyers of the group's boilers and/or other innovative products. We have nudged up our December closing net funds position (re: better than expected cash management) to £14m (vs £13m), offset by lower forecast 2016 boiler volumes of 10,000 (vs 15,000) based on a smoother ramp after commercial launch in Q1'16. Taken together, this strengthens the balance sheet, but does marginally increase next year's PBL to -£21.3m from -£19.6m. In our view, FEL on its own is worth in the region of £25m. Hence, when added to the boiler division (0.7x 2017 revenues) and the £14m cash pile, this delivers an unchanged combined sum-of-the-parts price target for the group of 40p / diluted share. |
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