VivoPower International |
Toyota agreement a major milestone |
Strategic announcement |
General industrials |
22 June 2021 |
Share price performance
Business description
Next events
Analyst
VivoPower International is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
VivoPower has signed a letter of intent (LOI) with Toyota Australia, which provides a significant endorsement of Tembo’s electric vehicle technology. Along with three other distribution agreements announced in 2021, it provides increasing certainty to the anticipated volume ramp-up.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/20 |
48.7 |
(1.0) |
(12.0) |
0.0 |
N/A |
N/A |
06/21e |
41.6 |
0.1 |
0.4 |
0.0 |
N/A |
N/A |
06/22e |
52.3 |
(0.9) |
(4.1) |
0.0 |
N/A |
N/A |
06/23e |
133.1 |
(1.4) |
(6.2) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Toyota LOI corroborates Tembo’s technology
Toyota Australia has signed an LOI with VivoPower's electric vehicle (EV) subsidiary, Tembo, for a collaboration programme using Tembo conversion kits to electrify Toyota Land Cruisers. The final agreement is expected to confirm Tembo as an exclusive partner for electrification of Toyota Land Cruisers for a five-year period. This is the culmination of two years of collaboration and field trials in the harsh environment of the Australian mining sector. Toyota is the largest car company in the world (9.5m units in 2020), a position it has gained through technology, quality and manufacturing excellence. Hence, we see this agreement as providing strong endorsement of Tembo’s technology.
Commercial agreements provide clarity to ramp-up
VivoPower has now signed four agreements/LOIs in 2021 as it builds an international distribution network for its EV business. This brings greater clarity and certainty to the volume profile as it looks to ramp up production in the coming years.
Valuation: $19/share
The DCF valuation in our March initiation note stands at $19 per share using a 13% WACC. The key delta is inevitably the fortunes of Tembo, including an assumption of 5,000 units per year in 2025. The agreements announced to date do not yet suggest the need to upgrade volume requirements, at least until the volumes from the Toyota LOI become clearer. However, these announcements are starting to reduce the risk associated with such a growth profile.
Toyota LOI
VivoPower announced it has signed an LOI with Toyota Motor Corporation of Australia (TMCA) for a collaboration programme using the conversion kits designed by VivoPower subsidiary Tembo for electrification of the powertrain for Toyota Land Cruisers. The LOI is expected to convert into a master service agreement (MSA) under which Tembo will become Toyota’s exclusive electrification partner for Land Cruisers for a period of five years. The deal is with TMCA hence, we understand, covers only Australia at present. We note that Australia is a key market for Toyota and Land Cruiser. We also understand that TMCA has been tasked by Toyota Motor Corporation (TMC) to develop an electric Land Cruiser and that this is the only such project globally within Toyota. This would suggest the potential for significantly greater geographic scope, particularly as we believe Toyota is unlikely to want to use multiple powertrain variances as this would add to complexity and cost.
Background
Tembo and Toyota have been working together for a number of years. Around two years ago they started collaborating on vehicles for two international mining groups in Australia. The Land Cruiser/Hilux is the vehicle of choice in the mining sector and Tembo has experience in ruggedisation and electrification. These vehicles have since been undergoing field trials, highlighted by the recent announcement from BHP.
The partnership, which initially involves the Land Cruiser only, will enable the launch of an off-road EV utility vehicle, fully tested in the harshest environment, into the wider market. The partnership will also permit a more seamless and lower-cost integration from the previous retrofit model (ie Tembo will be fitted into the original vehicle frame rather than the vehicle being purchased with an internal combustion engine and converted).
Volumes
Toyota sells c 400,000 Land Cruisers a year worldwide (total sales since launch in 1951 are now more than 10 million). In 2020, Toyota sold over 25,000 Land Cruisers in Australia and over 40,000 Hilux models. No volume commitments have been announced and they will, in part, depend on the speed of customer adoption of EVs. However, the potential would appear to be a magnitude greater than other recent Tembo agreements, as shown below. We expect the mining sector to be an early adopter given the expected financial benefits (reduced mine ventilation requirements, reduced vehicle maintenance and operating costs), along with increasing commitments to reducing emissions.
Future opportunities
The technology agreement covers Land Cruisers. There is potential to extend to other Toyota vehicles, with the Hilux being the closest model. Following this technology agreement, there is potential for further co-developments of the drive system and powertrain to improve performance.
Our interpretation of the agreement
The agreement is clearly a strong endorsement of Tembo and its technology. Not only is the agreement with the Australian subsidiary of the largest automotive company in the world, but it also covers a flagship model. It is also a step change for Tembo from re-kitting existing vehicles to being an integrated part of the manufacturing process.
Other recent contract announcements
VivoPower’s Tembo EV business has signed a number of commercial agreements in 2021.
Exhibit 1: Summary of recent agreements
Date |
Partner |
Region |
Contract |
Technology |
Volume (units) |
Timescale |
Value |
January 2021 |
GB Auto |
Australia |
Definitive agreement |
Conversion kits |
2,000 |
4 years |
$250m |
May 2021 |
Accès Industriel |
Canada |
Heads of terms |
Conversion kits |
1,675 |
5.5 years |
$120m |
June 2021 |
Arctic Trucks |
Nordic |
Heads of terms |
Conversion kits |
800 |
5.5 years |
$58m |
June 2021 |
Toyota |
Australia |
Letter of intent |
Technology partnership |
5 years |
Source: VivoPower
GB Auto
GB Auto is based in Australia. It is a leading provider of services, products and technology to fleet, heavy vehicle and mobile equipment, and specialises in the mining sector. GB has signed a definitive seven-year agreement under which it has committed to purchasing 2,000 Tembo electric conversion kits in the first four years including at least 500 kits in the first year. The value of the converted vehicles over the four years is estimated at around $250m. The collaboration will focus on the next-generation 72kWh battery kit for the Land Cruiser and Hilux models and the mining sector.
Accès Industriel
Accès Industriel is a supplier of mechanical equipment to the mining and industrial sector in Canada. Activities include sales, servicing, customisation/ruggedisation and leasing. Tembo has entered into a non-binding heads of terms to distribute Tembo in Canada. Under the proposed agreement, Accès would purchase 1,675 Tembo electric drivetrain conversion kits through to December 2026 with an estimated value of $120m.
Arctic Trucks
Arctic Trucks specialises in re-engineering, ruggedisation and conversion of four-wheel drive vehicles for extreme conditions. Tembo has entered into a non-binding heads of terms with Arctic to convert vehicles using Tembo electric kits in the Nordic region of Norway, Sweden, Iceland and Finland. Under the proposed agreement, Arctic Trucks would commit to purchasing 800 Tembo conversion kits over the next five and a half years with an estimated value of $58m.
Exhibit 2: Financial summary
$000s |
2018 |
2019 |
2020 |
2021e |
2022e |
2023e |
Year end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
INCOME STATEMENT |
||||||
Revenue |
33,647 |
39,036 |
48,710 |
41,592 |
52,320 |
133,149 |
Cost of Sales |
(28,524) |
(32,726) |
(40,885) |
(35,963) |
(47,313) |
(112,438) |
Gross Profit |
5,123 |
6,310 |
7,825 |
5,629 |
5,007 |
20,711 |
EBITDA |
(6,335) |
(3,990) |
3,935 |
4,940 |
5,254 |
11,551 |
Normalised operating profit |
(7,595) |
(5,410) |
2,169 |
2,281 |
217 |
2,103 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
Exceptionals |
(23,156) |
(2,017) |
(3,410) |
(1,900) |
0 |
0 |
Share-based payments |
0 |
0 |
0 |
0 |
0 |
0 |
Reported operating profit |
(30,751) |
(7,427) |
(1,241) |
381 |
217 |
2,103 |
Net Interest |
(3,386) |
(3,239) |
(3,149) |
(2,194) |
(1,110) |
(3,474) |
Profit Before Tax (norm) |
(10,981) |
(8,649) |
(980) |
86 |
(893) |
(1,371) |
Profit Before Tax (reported) |
(34,137) |
(10,666) |
(4,390) |
(1,814) |
(893) |
(1,371) |
Reported tax |
6,258 |
(557) |
(713) |
453 |
223 |
343 |
Profit After Tax (norm) |
(10,981) |
(8,649) |
(1,176) |
65 |
(670) |
(1,029) |
Profit After Tax (reported) |
(27,879) |
(11,223) |
(5,103) |
(1,360) |
(670) |
(1,029) |
Basic average number of shares outstanding (m) |
13,557 |
13,557 |
13,557 |
15,700 |
16,500 |
16,500 |
EPS - basic normalised (c) |
(81.00) |
(63.80) |
(12.00) |
0.41 |
(4.06) |
(6.23) |
EPS - diluted normalised (c) |
(81.00) |
(63.80) |
(12.00) |
0.41 |
(4.06) |
(6.23) |
EPS - basic reported (c) |
(205.64) |
(82.78) |
(37.64) |
(8.66) |
(4.06) |
(6.23) |
Dividend ($) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BALANCE SHEET |
||||||
Fixed Assets |
55,034 |
36,826 |
41,907 |
44,803 |
54,192 |
84,154 |
Intangible Assets |
36,402 |
31,762 |
29,849 |
31,750 |
40,423 |
46,206 |
Tangible Assets |
1,915 |
2,951 |
2,486 |
3,678 |
4,393 |
28,573 |
Investments & other |
16,717 |
2,113 |
9,572 |
9,375 |
9,375 |
9,375 |
Current Assets |
21,278 |
36,283 |
20,473 |
46,143 |
22,580 |
32,839 |
Stocks |
0 |
0 |
0 |
1,146 |
1,588 |
5,476 |
Debtors |
7,903 |
14,992 |
12,556 |
10,721 |
12,399 |
19,770 |
Cash & cash equivalents |
1,939 |
7,129 |
2,824 |
29,182 |
5,000 |
5,000 |
Other |
11,436 |
14,162 |
5,093 |
5,093 |
3,593 |
2,593 |
Current Liabilities |
(20,610) |
(29,133) |
(19,679) |
(16,472) |
(19,004) |
(28,704) |
Creditors |
(14,082) |
(24,639) |
(15,395) |
(13,046) |
(14,891) |
(22,511) |
Tax and social security |
(103) |
(449) |
(75) |
(528) |
(305) |
38 |
Short term borrowings |
(3,955) |
(2,327) |
(1,312) |
0 |
0 |
0 |
Other |
(2,470) |
(1,718) |
(2,897) |
(2,897) |
(3,808) |
(6,231) |
Long Term Liabilities |
(18,699) |
(21,460) |
(24,811) |
(26,954) |
(21,297) |
(54,051) |
Long term borrowings |
(18,385) |
(19,359) |
(24,642) |
(25,954) |
(19,983) |
(51,901) |
Other long-term liabilities |
(314) |
(2,101) |
(169) |
(1,000) |
(1,314) |
(2,151) |
Net Assets |
37,003 |
22,516 |
17,890 |
47,519 |
36,470 |
34,237 |
Minority interests |
0 |
0 |
184 |
6,300 |
6,301 |
6,302 |
Shareholders' equity |
37,003 |
22,516 |
18,074 |
53,819 |
42,771 |
40,539 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(6,335) |
(3,990) |
3,935 |
4,940 |
5,254 |
11,551 |
Working capital |
18,461 |
570 |
(3,145) |
(829) |
1,040 |
(584) |
Exceptional & other |
(3,229) |
684 |
(4,999) |
(3,843) |
(500) |
0 |
Tax |
0 |
0 |
(477) |
(475) |
0 |
0 |
Net operating cash flow |
8,897 |
(2,736) |
(4,686) |
(208) |
5,793 |
10,967 |
Capex |
1,196 |
116 |
(452) |
(4,752) |
(14,426) |
(39,410) |
Acquisitions/disposals |
(17,823) |
11,736 |
746 |
(1,500) |
0 |
0 |
Net interest |
(3,386) |
(3,243) |
(515) |
(2,194) |
(1,110) |
(3,474) |
Equity financing |
0 |
0 |
0 |
26,358 |
0 |
0 |
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
Other |
||||||
Net Cash Flow |
(11,116) |
5,873 |
(4,907) |
17,705 |
(9,742) |
(31,918) |
Opening net debt/(cash) |
(9,285) |
(20,401) |
(14,557) |
(22,945) |
(5,240) |
(14,983) |
FX |
0 |
1,102 |
(3,100) |
0 |
0 |
0 |
Other non-cash movements |
0 |
(1,131) |
(381) |
0 |
0 |
0 |
Closing net debt/(cash) |
(20,401) |
(14,557) |
(22,945) |
(5,240) |
(14,983) |
(46,901) |
Source: VivoPower International accounts, Edison Investment Research
|
|