Quadrise Fuels International — Trials in three sectors progressing

Quadrise (AIM: QED)

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Research: Industrials

Quadrise Fuels International — Trials in three sectors progressing

Quadrise is preparing for marine trials with MSC Shipmanagement, two larger-scale trials with an industrial partner in Morocco and a pilot up-stream trial in Utah. Management notes that these activities could potentially result in the first commercial shipments of MSAR in early calendar year (CY) 2022. Importantly, MSC would like to test Quadrise’s low carbon fuel, bioMSAR, ahead of standard MSAR during the letter of no objection (LONO) programme.

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Industrials

Quadrise Fuels International

Trials in three sectors progressing

Pre-close progress update

Alternative energy

29 June 2021

Price

3.56p

Market cap

£50m

Net cash (£m) at end December 2020 (excluding £7.0m (gross) from placing and open offer and £1.5m convertible securities, which have been converted to shares)

1.1

Shares in issue

1,390.1m

Free float

63.7%

Code

QFI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(25.5)

4.6

101.1

Rel (local)

(25.8)

(0.5)

69.8

52-week high/low

6.35p

1.62p

Business description

Quadrise is the innovator, supplier and global licensor of disruptive oil technology that produces a synthetic, enhanced heavy fuel oil called MSAR and a bio-fuel called bioMSAR. The technology provides a low cost and cleaner fuel for the heavy fuel oil and bio-fuel markets.

Next event

FY21 results

October 2021

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Quadrise Fuels International is a research client of Edison Investment Research Limited

Quadrise is preparing for marine trials with MSC Shipmanagement, two larger-scale trials with an industrial partner in Morocco and a pilot up-stream trial in Utah. Management notes that these activities could potentially result in the first commercial shipments of MSAR in early calendar year (CY) 2022. Importantly, MSC would like to test Quadrise’s low carbon fuel, bioMSAR, ahead of standard MSAR during the letter of no objection (LONO) programme.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

06/17

0.1

(3.9)

(4.1)

(0.45)

0.00

N/A

06/18

0.0

(3.3)

(3.5)

(0.37)

0.00

N/A

06/19

0.0

(2.8)

(3.0)

(0.32)

0.00

N/A

06/20

0.0

(3.1)

(3.4)

(0.32)

0.00

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Minor delays to projects

Preparatory work for the LONO trials with MSC is taking longer than management had expected, resulting in a couple of months delay in commencing the trial programme, which is now likely to begin very early in CY22. This means the start of the commercial roll-out across MSC’s global fleet has slipped slightly, from CY Q222 to mid-2022, subject to successful completion of the LONO trials. While the larger scale industrial trial in Morocco has slipped from CY H121 to CY Q321 because of COVID-19-related issues and the commercial trial scale to later in CY H221, management still expects that successful conclusion of these trials could potentially result in the first commercial shipments of MSAR to the customer early in CY22. However, Greenfield Energy has experienced significant problems in starting heavy oil extraction at the Petroteq Oil Sands plant in Utah, so has only recently been able to take samples for Quadrise to test, even though management had expected to receive the samples by the end of December 2020.

Accelerated testing of bioMSAR

The placing and open offer in March 2021 raising £7.0m (gross) enabled Quadrise, among other activities, to bring forward tests of bioMSAR on a medium-speed four-stroke Wärtsilä engine testing at VTT in Finland. The initial feedback received so far has been positive and will inform further testing by Aquafuel. BioMSAR comprises 40–50% refinery residues, 40–50% renewable glycerol and 10% water plus Nouryon additives. In addition, Quadrise is evaluating future production options including refining and algal production of glycerine to secure feed-stock availability as well as renewables such as lignin to offer a net carbon zero solution by 2030.

Valuation: Modest adoption transformational

Based on data from the company, our scenario analysis calculates that even modest adoption of MSAR would generate material profits. A single refinery producing MSAR equivalent to 1.9Mtpa HFO (heavy fuel oil) under a licensing model would generate $15.9m in annual EBITDA (see our November outlook note).

Exhibit 1: Financial summary

£000s

2016

2017

2018

2019

2020

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

2

126

9

22

0

EBITDA

 

 

(3,989)

(3,858)

(3,284)

(2,780)

(3,072)

Operating Profit (before amort. and except.)

 

 

(4,137)

(4,069)

(3,514)

(3,010)

(3,244)

Amortisation of acquired intangibles

0

0

0

0

0

Exceptionals

0

0

0

0

(1,133)

Share-based payments

(802)

(242)

(53)

(154)

(474)

Reported operating profit

(4,939)

(4,311)

(3,567)

(3,164)

(4,851)

Net Interest

33

9

11

(3)

(139)

Profit Before Tax (norm)

 

 

(4,104)

(4,060)

(3,503)

(3,013)

(3,383)

Profit Before Tax (reported)

 

 

(4,906)

(4,302)

(3,556)

(3,167)

(4,990)

Reported tax

149

213

294

184

147

Profit After Tax (norm)

(3,955)

(3,847)

(3,209)

(2,829)

(3,236)

Profit After Tax (reported)

(4,757)

(4,089)

(3,262)

(2,983)

(4,843)

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

(3,955)

(3,847)

(3,209)

(2,829)

(3,236)

Net income (reported)

(4,757)

(4,089)

(3,262)

(2,983)

(4,843)

Average Number of Shares Outstanding (m)

809.6

846.1

862.2

888.7

982.8

EPS - normalised (p)

 

 

(0.49)

(0.45)

(0.37)

(0.32)

(0.32)

EPS - diluted normalised (c)

 

 

(0.49)

(0.45)

(0.37)

(0.32)

(0.33)

EPS - basic reported (c)

 

 

(0.59)

(0.48)

(0.38)

(0.34)

(0.49)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

4,080

3,980

3,885

3,654

3,506

Intangible Assets

2,924

2,924

2,924

2,924

2,924

Tangible Assets

1,156

1,056

961

730

582

Investments & other

0

0

0

0

0

Current Assets

 

 

4,685

5,561

2,600

1,396

2,766

Stocks

0

61

61

61

61

Debtors

297

302

188

169

213

Cash & cash equivalents

4,268

5,045

2,229

1,060

2,380

Other

120

153

122

106

112

Current Liabilities

 

 

(576)

(247)

(400)

(288)

(2,243)

Creditors

(576)

(247)

(400)

(288)

(198)

Tax and social security

0

0

0

0

0

Short term borrowings

0

0

0

0

0

Convertible securities

0

0

0

0

(2,045)

Long Term Liabilities

 

 

0

0

0

0

0

Long term borrowings

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

8,189

9,294

6,085

4,762

4,029

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

8,189

9,294

6,085

4,762

4,029

CASH FLOW

Op Cash Flow before WC and tax

(3,989)

(3,858)

(3,284)

(2,780)

(3,072)

Working capital

308

(428)

298

(77)

(140)

Exceptional & other

2

0

0

130

65

Tax

149

213

294

184

147

Net operating cash flow

 

 

(3,530)

(4,073)

(2,692)

(2,543)

(3,000)

Capex

(596)

(111)

(135)

(24)

(24)

Acquisitions/disposals

0

0

0

0

0

Net interest

33

9

11

(3)

1

Equity financing

0

4,952

0

1,401

2,343

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(4,093)

777

(2,816)

(1,169)

(680)

Opening net debt/(cash)

 

 

(8,361)

(4,268)

(5,045)

(2,229)

(1,060)

FX

0

0

0

0

0

Other non-cash movements

0

0

0

0

2,000

Closing net debt/(cash)

 

 

(4,268)

(5,045)

(2,229)

(1,060)

(2,380)

Source: Company reports


General disclaimer and copyright

This report has been commissioned by Quadrise Fuels International and prepared and issued by Edison, in consideration of a fee payable by Quadrise Fuels International. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Quadrise Fuels International and prepared and issued by Edison, in consideration of a fee payable by Quadrise Fuels International. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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