Quadrise — Funding the gap to commercial revenues

Quadrise (AIM: QED)

Last close As at 19/04/2024

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Research: Industrials

Quadrise — Funding the gap to commercial revenues

Quadrise continues to advance towards commercial revenues for its innovative fuel and biofuel technologies, with each of its projects approaching key milestones in 2024. Preparatory steps for the MSC Shipmanagement (MSC) fuel trials are now complete and fuel supply agreements are nearing finalisation. Quadrise will achieve its first licensing revenues on the successful completion of Valkor’s project financing (timing uncertain). Quadrise also successfully concluded its Morocco trial, paving the way for commercial negotiations. According to management’s guidance, the potential Valkor revenue, the £1.5m gross proceeds raised in March 2024 and the £1.7m of cash (at end-December 2023) will provide Quadrise the necessary working capital resources to 31 March 2025. By then, the Morocco and Utah projects should be generating commercial revenue and the trial with MSC will be near completion.

Written by

Andrew Keen

MD - Head of Content, Energy & Resources, Industrials

Industrials

Quadrise

Sufficient funding into Q1 CY25

Alternative energy

Spotlight - Update

25 March 2024

Price

1.3p

Market cap

£21m

US$1.28/£

Share price graph

Share details

Code

QED

Listing

AIM

Shares in issue (pre-placing and open offer)

1,541m

Net cash at end-December 2023

£1.7m

Business description

Quadrise is the innovator and global supplier of disruptive fuel blending technology that produces a synthetic, enhanced fuel oil called MSAR and a biofuel called bioMSAR. The technology provides a low-cost and cleaner energy for marine, power and industrial applications.

Bull

bioMSAR gives better CO2 and emissions reductions and cost savings than existing biofuels.

Adoption of MSAR improves economics of refinery production and upstream operations.

Adoption of Quadrise’s technology reduces costs and emissions in marine bunker, industrial and power markets.

Bear

Economics of adoption dependent on oil and competing biofuel product spreads.

Ability to progress trials adversely affected by many factors outside Quadrise’s control.

Size of company limits number of projects that can be progressed at any one time.

Analysts

Andrew Keen

+44 (0)20 3077 5700

Harry Kilby

+44 (0)20 3077 5724

Quadrise is a research client of Edison Investment Research Limited

Quadrise continues to advance towards commercial revenues for its innovative fuel and biofuel technologies, with each of its projects approaching key milestones in 2024. Preparatory steps for the MSC Shipmanagement (MSC) fuel trials are now complete and fuel supply agreements are nearing finalisation. Quadrise will achieve its first licensing revenues on the successful completion of Valkor’s project financing (timing uncertain). Quadrise also successfully concluded its Morocco trial, paving the way for commercial negotiations. According to management’s guidance, the potential Valkor revenue, the £1.5m gross proceeds raised in March 2024 and the £1.7m of cash (at end-December 2023) will provide Quadrise the necessary working capital resources to 31 March 2025. By then, the Morocco and Utah projects should be generating commercial revenue and the trial with MSC will be near completion.

Historical performance

Year
end

Revenue
(£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

06/20

0.00

(3.0)

(3.3)

(0.32)

0.00

N/A

06/21

0.02

(2.9)

(2.8)

(0.23)

0.00

N/A

06/22

0.08

(2.7)

(2.8)

(0.19)

0.00

N/A

06/23

0.00

(3.0)

(3.1)

(0.21)

0.00

N/A

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

Funding the gap to commercial revenues

Open offer to raise up to an additional £1m gross

Quadrise is issuing 120m new shares through a placing and subscription at 1.25p/share for gross proceeds of £1.5m, including 1.1m in direct subscription and 2.2m in placing shares to some directors. The company also announced an open offer (for one share per 19 shares held) to existing shareholders to raise an additional (up to) £1m gross. Management has guided that the raise (excluding the open offer) plus the funds from Valkor (licensing plus delivery totalling £1.5m) should provide funding to the end of Q125 (given the £1.7m cash reserve at end-December 2023). The open offer could potentially extend funding past Q1 CY25.

Multiple paths to revenue

Quadrise is progressing several options for its technology. These include: trials of its MSAR and bioMSAR technology in Morocco; a collaboration with Cargill and MAC2 to supply fuel for MSC on-vessel trials in Q324; the licensing of its technology to Valkor for heavy oil application in the US; and collaborations with Vertoro, BTG Bioliquids and Euthenia Energy Group to investigate the use of their sustainable biomass-derived sugars as alternative biofuel for bioMSAR.

Outlook: Viable long-term green technology

In our view, underlying market conditions for Quadrise’s technology (emulsifying heavy fuel and biofuel to lower marine shipping emissions) remain compelling, and its technologies remain innovative and viable long-term options for the marine industry. The successful placement guarantees these options can be advanced over the next 12 months and the open offer provides Quadrise with further security and flexibility in 2025.

Quadrise held £1.7m in cash reserves at 31 December 2023. In its interim update, the company acknowledged the reserves are not sufficient to cover its operating requirements over the next 12 months. Quadrise used £1.4m (c £235,000 per month) in the six months to 31 December 2023, implying, if costs are constant, a cash requirement of £2.8m in CY24. This is assuming no revenue from licensing or other operational revenue.

On 18 March Quadrise announced a share placing and open offer to shareholders. The placing resulted in the issuance of 119m new shares to new and existing holders, and 1.1m new shares through the direct subscription of certain directors of the company at a price of 1.25p per share, raising gross proceeds of £1.5m (approximately £1.3m net after costs). This, plus the £1.7m in cash reserves, implies available funding of £3m, sufficient (again assuming constant costs and no other revenue) to the end of calendar 2024.

In addition, Quadrise has announced an open offer to raise additional fund of up to £1m gross, taking the gross fund-raising process to a maximum of £2.5m. This offer is for one open offer share per 19 existing ordinary shares held, with the potential issue of 82.2m new shares issued at an offer price of 1.25p/share. The open offer is not underwritten so the size of the fund-raising for this portion is uncertain. If qualifying shareholders do not take up all the open offer shares, Quadrise and the bookrunners may seek to find alternative subscribers. Application has been made to the London Stock Exchange for the expected admission of the placing shares and the subscription shares to trading on AIM on 26 March. The updated timetable (as of 22 March 2024) indicates that the expected admission date for the open offer shares is 16 April and the results of the open offer are expected to be announced on 12 April.

Quadrise has highlighted that the net proceeds of the placing and subscription, alongside the Valkor funds coming in (eg the licensing and delivery fee from Valkor of £1.5m), are expected to provide it with the necessary working capital resources to 31 March 2025 (ie before any additional fund-raising from the open offer). The company has stated that by 31 March 2025, it expects its projects in Morocco and Utah to be generating commercial revenues. Quadrise has also said that if the open offer were fully subscribed, this would provide the company with the resources to create a presence in the bunkering hubs of Panama and Singapore, enabling further bioMSAR development and a pathway to profitability.

Six-month results to 31 December 2023

Quadrise is pre-revenue and, as such, its results reflect ongoing expenses of completing trials and agreements through to commercial revenue. Quadrise reported its H123 results (for the six months to 31 December 2023) on 18 March, recording a loss of £1.7m. The loss included £0.9m of production and development costs and £0.7m of administration costs. Total assets at the end of period were £5.2m (£6.4m H122), with the change due principally to the use of cash. Each of the company’s key projects in the marine, upstream and industrial sectors are nearing major milestones, and management stated its key focus is on the completion of trials and agreements that will demonstrate MSAR and bioMSAR technology at viable commercial scale. Quadrise’s tax losses in the UK amount to roughly £62m (£60m H122) and these are potentially available to be carried forward against future profits. Basic and diluted loss per share marginally improved from the previous year at 0.11p (0.12p H122). Quadrise held £1.7m in cash reserves (£2.6m H122) at 31 December 2023.

Trial progress updates

MSC Shipmanagement

MSC is the world’s largest container shipping line. Quadrise signed a framework agreement in July 2022 with MSC Shipmanagement to test and trial both Quadrise’s cleaner marine fuel and biofuel alternatives in its container vessels. On 6 February 2024, Quadrise announced a collaboration agreement with Cargill and MAC2 (part of Group Machiels) regarding the production of MSAR and bioMSAR fuels for the company’s forthcoming vessel trials on board the MSC Leandra. Management expects the binding agreement to be signed by H124, along with binding agreements for toll manufacture and fuel supply in the same period. The trial will be carried out at the MAC2 bunker facility in Antwerp, Belgium, using feedstocks supplied by Cargill, one of the largest private US companies.

The MSAR Manufacturing Unit (MMU) and associated equipment is expected to be installed and commissioned at the MAC2 site in Q224, with the vessel trials beginning in Q324 (subject to the receipt of permits by MAC2). The trial will consist of an initial proof of concept (POC) test using MSAR and bioMSAR, followed by 4,000 hours of operation on bioMSAR to obtain a letter of no objection (LONO). The bioMSAR LONO trial is expected to conclude in approximately six to eight months, following completion of the one- to two-month long POC tests. In addition to progressing the work with MSC, Quadrise continues to assess strategic opportunities and potential partnerships, with the intention of accelerating the commercialisation of both its bioMSAR and MSAR fuels, which both contribute to decarbonising shipping.

Morocco

Quadrise’s project with an industrial client (a major mining and chemicals firm) in Morocco is intended to stimulate the supply of MSAR in the Mediterranean. This could have benefits for the use of its products in the marine sector as Morocco is a significant location for maritime trade and bunkering due to its strategic location connecting Europe, Asia and Africa.

On 22 November 2023, Quadrise announced the successful completion, in accordance with pre-agreed performance criteria, of the industrial demonstration test of MSAR and bioMSAR at its client site in Morocco. The industrial unit was able to process product at commercial scale throughout the entire trial, using Quadrise’s fuel to provide the required thermal energy for drying throughout. The objective was to make a direct comparison to the site’s normal operations, which involved running on heavy fuel oil. The industrial unit tested was successfully operated at varying loads up to 100% (equivalent to 33MW), which was supplied by a single burner, with fuel consumption similar to a mediumsized container ship.

The emissions from the MSAR and bioMSAR combustion were low and significantly within the environmental limits for the site. This trial was the first demonstration of bioMSAR capability and application within an industrial setting. Quadrise has submitted a technical report to the client.

Quadrise has now entered discussions for long-term commercial supply, with a view of signing a fuel supply agreement in H124. Additionally, both parties are seeking to reach an agreement to further increase commercial applications for MSAR and, in the future, bioMSAR fuels more broadly across other client locations. Quadrise has also completed a technical and economic feasibility study for another industrial demonstration test at a second site, which will be undertaken at the client’s cost.

Utah, Valkor Technologies (Valkor)

The project with Valkor (a US drilling and oil production firm) in Utah targets the supply of lowsulphur MSAR and bioMSAR to the marine and power sectors, with the fuels produced on-site then transported to major ports and power stations.

In June 2023, Quadrise signed a site licence and supply agreement (SLS) with Valkor under which Quadrise granted Valkor the exclusive rights and licence to use its technology at a central processing facility located at its primary project site (PPS) at Asphalt Ridge in Utah. In exchange, Quadrise will receive a $1m licence fee subject to receipt by Valkor of project financing of at least $15m. Quadrise will then receive a further $0.5m on delivery of an MMU and associated equipment to the PPS and $75k per quarter for technology transfer fees.

Valkor currently has several projects that could utilise Quadrise’s technology. Quadrise expects commercial trials under the SLS to lead to further commercialisation opportunities, subject to discussions with stakeholders to finalise agreements.

bioMSAR and bioMSAR Zero

In June 2023 Quadrise signed a joint development agreement with BTG Bioliquids to further investigate the use of its propriety FPBO as an alternative biofuel feedstock for bioMSAR, as well as other related sugars. Further testing is ongoing with other biofuel supplies. Following this, a joint patent application was filed in August 2023 covering Vertoro crude sugar oil (CSO) bioMSAR. Further testing is planned to take place at reputable third-party testing facilities of both the Vertoro CSO and BTG Bioliquids sugars feedstock. During the period, Quadrise investigated alternative feedstocks to glycerine for bioMSAR Zero including both water- and oil-soluble biofuels, which are well ahead of its launch target in 2030.

In December 2023 Quadrise announced final test results for potential low-carbon marine fuels. The tests demonstrated that bioMSAR blends containing Vertoro’s CSO reduced carbon dioxide (CO2) emissions by over 30%, while increasing engine efficiency by up to 7% and significantly lowering emissions of nitrogen oxide (NOx) and carbon monoxide (CO) compared to diesel. BioMSAR formulations incorporating waste-based methyl esters were also shown to reduce CO2 emissions by over 45%, while increasing engine efficiency by up to 7% and reducing NOx and CO emissions significantly when compared to diesel, providing a potential new pathway for bioMSAR Zero as a sustainable marine fuel. See our flash note for further details.


Exhibit 1: Financial summary

£000s

2019

2020

2021

2022

2023

Year end 30-June

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

22

0

17

75

0

EBITDA

 

 

(2,780)

(3,006)

(2,752)

(2,671)

(2,953)

Operating Profit (before amort. and except.)

 

 

(3,010)

(3,178)

(2,887)

(2,791)

(3,072)

Amortisation of acquired intangibles

0

0

0

0

0

Exceptionals

0

(1,199)

(1,266)

(13)

(6)

Share-based payments

(154)

(474)

(303)

44

(178)

Reported operating profit

(3,164)

(4,851)

(4,456)

(2,760)

(3,256)

Net Interest

(3)

(139)

46

(2)

8

Profit Before Tax (norm)

 

 

(3,013)

(3,317)

(2,841)

(2,793)

(3,064)

Profit Before Tax (reported)

 

 

(3,167)

(4,990)

(4,410)

(2,762)

(3,248)

Reported tax

184

147

150

164

154

Profit After Tax (norm)

(2,829)

(3,170)

(2,691)

(2,629)

(2,910)

Profit After Tax (reported)

(2,983)

(4,843)

(4,260)

(2,598)

(3,094)

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

(2,829)

(3,170)

(2,691)

(2,629)

(2,910)

Net income (reported)

(2,983)

(4,843)

(4,260)

(2,598)

(3,094)

Average Number of Shares Outstanding (m)

888.7

982.8

1,175.4

1,406.9

1,406.9

EPS - normalised (p)

 

 

(0.32)

(0.32)

(0.23)

(0.19)

(0.21)

EPS - diluted normalised (p)

 

 

(0.32)

(0.32)

(0.23)

(0.19)

(0.21)

EPS - basic reported (p)

 

 

(0.34)

(0.49)

(0.36)

(0.18)

(0.22)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

3,654

3,506

3,384

3,322

3,298

Intangible Assets

2,924

2,924

2,924

2,924

2,924

Tangible Assets

730

582

460

398

374

Investments & other

0

0

0

0

0

Current Assets

 

 

1,396

2,766

7,279

4,703

1,724

Stocks

61

61

61

0

174

Debtors

169

213

117

103

89

Cash & cash equivalents

1,060

2,380

7,006

4,423

1,342

Other

106

112

95

177

119

Current Liabilities

 

 

(288)

(2,243)

(276)

(262)

(175)

Creditors

(288)

(198)

(276)

(262)

(175)

Tax and social security

0

0

0

0

0

Short term borrowings

0

0

0

0

0

Convertible securities

0

(2,045)

0

0

0

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

 

 

4,762

4,029

10,387

7,763

4,847

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

4,762

4,029

10,387

7,763

4,847

CASH FLOW

Op Cash Flow before WC and tax

(2,780)

(3,072)

(2,752)

(2,671)

(2,953)

Working capital

(77)

(140)

191

(21)

(189)

Exceptional & other

130

65

7

5

(10)

Tax

184

147

150

164

154

Net operating cash flow

 

 

(2,543)

(3,000)

(2,404)

(2,523)

(2,998)

Capex

(24)

(24)

(29)

(58)

(95)

Acquisitions/disposals

0

0

0

0

0

Net interest

(3)

1

46

(2)

8

Equity financing

1,401

2,343

6,513

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

4

Net Cash Flow

(1,169)

(680)

4,126

(2,583)

(3,081)

Opening net debt/(cash)

 

 

(2,229)

(1,060)

(2,380)

(7,006)

(4,423)

FX

0

0

0

0

0

Other non-cash movements

0

2,000

500

0

0

Closing net debt/(cash)

 

 

(1,060)

(2,380)

(7,006)

(4,423)

(1,342)

Source: Quadrise

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This report has been commissioned by Quadrise and prepared and issued by Edison, in consideration of a fee payable by Quadrise. Edison Investment Research standard fees are £60,000 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.

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London │ New York │ Frankfurt

20 Red Lion Street

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United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Greencoat Renewables — Acquisitions generating more green

Greencoat Renewables (GRP) recorded positive FY23 results, with continued strong net cash generation of €196.7m (2022: €215m) underpinning a significantly covered dividend of 2.7x (2022: 3.2x). NAV per share (112.1 cents) decreased marginally from the previous year (112.4 cents) due to a reduction in short-term power prices and an increase in the portfolio discount rate, both largely offset by strong cash generation. GRP is strongly cash generative (reflecting the quality of its assets) and this cash generation is enabling the company’s continued expansion, with five transactions completed in 2023 and two expected in 2024.

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