Loop Energy — Commercial orders underway

Loop Energy (TSX: LPEN)

Currency in CAD

Last close As at 27/01/2023

CAD1.04

−0.02 (−1.89%)

Market capitalisation

CAD36m

Research: Industrials

Loop Energy — Commercial orders underway

Loop Energy’s patented PEM fuel cell technology has a leading combination of fuel efficiency, power density and durability, resulting in an attractive total cost of ownership (TCO), providing the company with a competitive advantage. This is supported by a recent transformational commercial order with electric truck maker Tevva, won via a competitive tender process. Loop Energy is targeting disruptors and early movers in electrification of the return-to-base fleet segment of road transport, which should help it to ramp up sales and drive down costs relatively quickly. We consider only the truck and bus markets, which are a portion of the company’s total addressable market, and estimate a US$4bn market in 2030 and a c US$60bn market by 2050. Our DCF valuation for Loop Energy implies C$4.5/share at a 15% cost of capital, which is more than double the current share price. This increases sharply as the investment case de-risks.

James Magness

Written by

James Magness

Director, Energy & Resources

Industrials

Loop Energy

Commercial orders underway

Initiation of coverage

Hydrogen

15 September 2022

Price

C$2.12

Market cap

C$72m

Net cash (C$m) at end of Q222

40

Shares in issue

34.1m

Free float

80%

Code

LPEN

Primary exchange

TSXV

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.5

9.5

(60.8)

Rel (local)

12.0

8.5

(59.1)

52-week high/low

C$5.8

C$1.5

Business description

Loop Energy, headquartered in Vancouver, develops and manufactures patented hydrogen proton exchange membrane (PEM) fuel cells. It is targeting the return to base fleet market, where it has a growing order book with 12 customers.

Next events

Q322 results

9 November 2022

New order announcements

Ongoing

Analysts

James Magness

+44 (0)20 3077 5756

Anne Margaret Crow

+44 (0)20 3077 5700

Loop Energy is a research client of Edison Investment Research Limited

Loop Energy’s patented PEM fuel cell technology has a leading combination of fuel efficiency, power density and durability, resulting in an attractive total cost of ownership (TCO), providing the company with a competitive advantage. This is supported by a recent transformational commercial order with electric truck maker Tevva, won via a competitive tender process. Loop Energy is targeting disruptors and early movers in electrification of the return-to-base fleet segment of road transport, which should help it to ramp up sales and drive down costs relatively quickly. We consider only the truck and bus markets, which are a portion of the company’s total addressable market, and estimate a US$4bn market in 2030 and a c US$60bn market by 2050. Our DCF valuation for Loop Energy implies C$4.5/share at a 15% cost of capital, which is more than double the current share price. This increases sharply as the investment case de-risks.

Year end

Revenue
(C$m)

EBIT*
(C$m)

Operating cash flow (C$m)**

Net cash/(debt)
(C$m)***

Capex
(C$m)

12/20

0.5

(8.2)

(7.7)

(1.7)

(0.7)

12/21

1.4

(24.7)

(20.4)

64.6

(6.7)

12/22e

4.2

(42.4)

(40.1)

(2.6)

(27.5)

12/23e

28.0

(47.5)

(46.3)

(61.4)

(12.4)

Note: *EBIT is pre exceptionals and excludes a C$9.75m grant received from the Canadian government. **Pre-interest, pre-tax and post-working capital.

eFlow technology results in attractive economics

Loop Energy’s patented eFlow geometry means that fluid flow is constant across the fuel cell plate. This enables up to 16% less hydrogen to be consumed for the same power output as conventional fuel cells, as well as up to 90% higher peak power and up to 10 times better current density uniformity. This results in attractive economics as the hydrogen fuel cost is c 50% of the TCO, and has helped win a transformational multi-year sales contract, worth over US$12m, from Tevva.

Regulation drives a potentially enormous market

Countries are legislating to ban the sales of new ICE vehicles to help achieve net zero emissions by 2050. Fuel cells are better suited to heavier vehicles, particularly with heavy loads, thus we consider only the truck and bus markets in this report, and assume fuel cell range extenders for battery electric vehicles (BEVs) appear in 50% of electric trucks and buses by 2050. We assume Loop Energy achieves a 10% share of the range extender market in 2030, decreasing to 5% by 2050. Tevva alone could support our 2030 sales assumption as it has an ambition of over 100,000 Tevva vehicles in service before the end of this decade.

Valuation

Our DCF, which covers the period 2022–50, followed by a terminal value with a 3% terminal growth rate, suggests a valuation of C$4.5/share, at a 15% cost of capital. This is more than double the current share price (C$2.12). Our valuation is highly subjective, due to the early stage of the company, absence of track record and nascent nature of the fuel cell market, thus we provide a detailed risks and sensitivities analysis in this report.

Investment summary

Differentiated product with an attractive total cost of energy

Loop Energy is a Canadian listed company, headquartered in Vancouver, which develops and manufactures hydrogen fuel cells. It is focused on driving growth through the return to base fleet market where fuel cells offer better range, payload capacity and refuelling times than the battery powered alternatives, which is most prominent for medium and heavy-duty segments. The company asserts that its proprietary patented PEM fuel cells have an unmatched combination of fuel efficiency, power density and durability, resulting in an attractive total cost of energy compared with other fuel cell producers (see ‘16-90-10’ advantage in Technology section), which gives Loop Energy a significant competitive advantage. The benefits of the technology have been demonstrated by the company’s recent first commercial order with British electric truck maker Tevva, won through a competitive tender process.

Loop Energy’s existing product range comprises 30kW, 50kW and 60kW modules and it is developing a 120kW module, which is scheduled for launch during the IAA Transportation conference in Hanover, Germany on 20–25 September 2022. These products are in the sweet spot for fuel cell range extenders for BEVs or battery fuel cell (BFC) hybrids) in Loop Energy’s targeted return to base fleet market. If more fuel cell dominant BFC hybrids prevail as the electric vehicle (EV) market for heavier commercial vehicles develops, then larger heavy-duty trucks could require fuel cells of c 300kW. Loop Energy’s product is modular, so it should be relatively easy to scale its product range should the market need arise. The same is true for other future potential markets such as marine and aerospace. To support an increase in volumes, it is expanding its manufacturing capacity, with facilities in Canada and China, as well as business development offices in the United States, Asia and Europe. It has recently announced it is setting up a facility in the UK.

Strategic focus optimises costs

Loop Energy has a focused product range and is targeting disruptors and first movers in road transport. We believe this is a sensible strategy that could enable it to ramp up sales quicker than some peers. It is more cost efficient than creating a broad product range and targeting big corporates, many of which will move slowly to avoid cannibalising existing sales. In this report, we focus purely on the truck and bus markets (we use ‘trucks’ to represent both medium and heavy-duty trucks) and believe there is significant potential for Loop Energy to reach economic-scale volumes by the mid-to late 2020s. Loop Energy is also targeting the light commercial vehicle (LCV) market, however, we do not include it in our base case as we believe that truck and bus sales potential is sufficient to reach economic scale sales. Any traction in the LCV market provides additional upside.

We do not consider other potential markets such as marine, aviation and long duration energy storage, which will likely develop slower than road transport. By driving costs down through ramping up volumes for road transport, Loop Energy will be in a strong competitive position to expand its product range and penetrate these other markets as they start to build momentum.

Trucks and buses are a potentially very large market

Many countries are setting into law net zero emissions targets for 2050. This will completely transform the global energy complex, including road transport. We note that countries and regions such as the European Union, the UK and China have regulation in place banning the sales of pure internal combustion engine (ICE) vehicles by the end of the 2030s. We focus on trucks and buses because hydrogen fuel cells are better suited to heavier vehicles, particularly with heavy loads and for longer distances. We have set up a market model for trucks and buses (as well as LCVs), which is based on the International Energy Agency’s (IEA’s) projections for EV penetration by 2030, and assuming BFC hybrids, or fuel cell electric vehicles (FCEVs), are used in 50% of EV buses and 30% of EV heavy-duty trucks (increasing to 50% by 2050), equates to US$4bn by 2030 and c US$60bn by 2050. We assume an average sale price of c US$225/kW (real) in 2030 and c US$100/kW (real) by 2050. We assume average fuel cell range extender size of 60kW in 2030, increasing to 80kW in 2050. These market sizes would be considerably larger if more fuel cell dominant solutions prevailed, particularly in heavier trucks, where fuel cells of c 300kW could be used. This could increase the market size for BFC hybrid (or FCEV) trucks and buses to above US$10bn in 2030. Any traction in the LCV market would provide additional upside.

We are conservative in our valuation as we assume Loop Energy only commands a 10% market share in 2030 (c 30,000 units) and a 5% share in 2050 (c 375,000 units), reflecting potentially increased competition. We believe that given its competitive advantage, Loop Energy could command a considerably higher market share. We note that Tevva alone could support 30,000 units in 2030. Tevva has an ambition of more than 100,000 Tevva vehicles in service before the end of this decade.

Rollercoaster share prices

The fuel cell sector has seen a rollercoaster in share price performance since 2019. Loop Energy’s closest PEM fuel cell peers (Ballard Power, PowerCell Sweden and Proton Motor Power Systems) saw share price increases of 12–19x between 2019 and January 2021, which is the sector’s recent peak. A month after this, on 25 February 2021, Loop Energy floated at C$16/share; since then its shares have fallen to a low of C$1.52 in June 2022 before recovering to C$2.12, which is 87% below the initial public offering (IPO) price. Over the same period its peers’ share prices have fallen by 50–73%. Loop Energy’s relative underperformance is despite significant commercial progress, which should de-risk its investment case, and is possibly due to Loop Energy’s smaller market cap and lower liquidity.

Valuation: Multi-bagger as it de-risks

Exhibit 1: Valuation sensitivities to TGR versus CoC (C$/share)

Terminal growth rate

0%

1%

2%

3%

4%

5%

6%

Cost of capital

17%

1.3

1.4

1.5

1.6

1.7

1.9

2.1

16%

2.5

2.6

2.7

2.9

3.1

3.3

3.5

15%

3.9

4.1

4.3

4.5

4.8

5.2

5.6

14%

5.9

6.1

6.4

6.8

7.2

7.8

8.4

13%

8.5

8.9

9.3

9.9

10.6

11.4

12.5

12%

12.0

12.6

13.3

14.2

15.3

16.7

18.6

11%

16.7

17.6

18.8

20.2

22.1

24.5

27.9

10%

23.2

24.7

26.6

29.0

32.2

36.6

43.3

% change at CoC = 15%:

-14%

-10%

-5%

0%

6%

14%

23%

Source: Edison Investment Research

We value Loop Energy using a DCF analysis over the period 2022–50, followed by a terminal value with a 3% terminal growth rate (TGR). In our view, this better reflects the long-term value and growth prospects of the company. Adopting a cost of capital (CoC) of 15%, we arrive at a valuation of C$4.5/share, which is more than double the current share price (C$2.12). Our valuation is highly subjective, due to the early stage of the company, absence of track record and nascent nature of the fuel cell market, thus we provide a detailed sensitivities analysis in this report. As Loop Energy ramps up volume sales, improves profitability and de-risks, one could expect our valuation to increase in multiples. For example, assuming a CoC of 13%, just 2 percentage points (pps) below our 15% base case, would more than double the valuation to C$9.9/share, which is more than four times the current share price. A CoC of 10% would increase the valuation to C$29/share, c 14 times the current share price.

Most peer valuation metrics are not meaningful as none of the pure play fuel cell developers are making an operating profit, and unsurprisingly therefore they are all recording negative operating cash flow. However, on an EV/sales basis, Loop Energy is significantly undervalued compared to its closest peers. Based on 2024 consensus sales (from Refinitiv), Loop Energy has an EV/sales ratio of 0.9x compared to Ballard Power’s 6.5x and PowerCell Sweden’s 17.8x.

Financials: Operational cash flow positive in 2027

In our base case, Loop Energy has just sufficient capital to fund its plans for FY22. However, it will need additional funding for FY23. Along with its Q222 results, the company announced it is filing for a base shelf prospectus that will allow it to raise up to C$100m, in any number of tranches, at short notice, over the next 25 months. We expect Loop Energy to become operationally cash flow positive in 2027 and assume that it will be able to raise debt capital to fund growth from 2028. Until then we estimate the company will require c C$250m in equity funding, on top of its net cash of c C$40m at the end of H122 and C$9.75m grant received from the Canadian government. This is required for working capital and increasing factory capacity to deliver on strong long-term sales growth projections.

Risk and sensitivities

Loop Energy is an early-stage company in nascent markets with high long-term growth potential. It has no track record of profitability or cash flow generation. Thus, our forecasts are highly subjective and sensitive to numerous assumptions. As such we provide a detailed quantitation sensitivity section towards the end of this report. Other key risks not addressed in that section are:

Advancements in battery technologies: battery technologies are gaining significant traction among passenger car makers and there are many truck and bus OEMs exploring battery technologies (as well as fuel cells) for commercial vehicles. Tesla is now taking orders for a semi-truck, which is fully loaded at 37 tonnes, has a range of up to 500 miles and can recover 70% of range by charging for 30 minutes. However, heavy investment is still required for charging points, particularly for fleet managers, which may also need decentralised power generation. Further advances in battery technology, such as solid-state electrolytes, might remove the need for hydrogen fuel cell technology for many types of trucks and buses. This could dramatically reduce Loop Energy’s target market.

Roll-out of hydrogen refuelling stations: the pace of the roll-out of hydrogen charging infrastructure could have a significant impact on the speed of penetration of hydrogen in road transport. Loop Energy is mitigating this by targeting the return to base fleet market, where fleet owners would refuel using on-site hydrogen. Our longer-term sales forecasts, however, could be affected without significant investment in hydrogen charging infrastructure.

Funding risk: we estimate that Loop Energy requires another c C$250m in equity capital until it becomes operationally cash flow positive (we estimate in 2027, based on our forecasts). There is a risk that Loop Energy either cannot raise the capital or raises it at a significant discount to its prevailing share price.

Next-generation fuel cell technology

As discussed in our report The hydrogen economy – decarbonising the final 20%, fuel cells bring about a controlled reaction between hydrogen and oxygen to form water, electrical energy and heat. Because hydrogen and oxygen do not spontaneously react, the electrochemical reaction is effected by bringing them together in the presence of a catalyst such as platinum or heating the gases to a high temperature, in which case the stack (of individual fuel cells), which is where the electrochemical process takes place, must be made from specialist materials. As individual fuel cells produce relatively small amounts of power, they are typically grouped together (often in series) into a fuel cell stack.

Exhibit 2: Comparison of fuel cell types

Fuel cell type

1,000s of units shipped*

MW shipped*

Operating temperature

Electrical efficiency

Typical applications

Companies

Proton exchange membrane fuel cell (PEMFC)

53.6

1,029.7

80–100°C

60% hydrogen 40% reformed fuel

Transport, portable, back-up power, stationary residential and commercial/industrial

Ballard, Bramble Energy, Cummins (Hydrogenics), EKPO Fuel Cell Technologies, GM Hydrotec, Horizon Fuel Cell Technologies, Hypoint, Hyster-Yale (Nuvera), Intelligent Energy, Nedstack, Panasonic, Plug Power, PowerCell, PowerUP, Proton Motor Power Systems, SFC Energy, Symbio, TECO 2030, Toshiba, Toyota, Unilia Canada Fuel Cells

Solid oxide fuel cell (SOFC)

24.7

147.5

500–1,000°C

<60%

Stationary utilities, commercial/industrial and residential

Adaptive Energy, Adelan, Aisin Seiki, Bloom Energy, Ceres Power, Cummins, Fraunhofer IKTS, FuelCell Energy (under development), H2e Power Systems (Hexis), Mitsubishi Power, Redox Power Systems. SOLIDPower, Sunfire (Staxera), Upstart Power, Watt Fuel Cell Corp

Direct methanol fuel cell (DMFC)

3.8

0.4

60–130°C

<40%

Portable consumer/military, drones

Advent Technologies, Blue World Technologies, Honeywell (Protonex), SFC Energy

Alkaline fuel cell
(AFC)

0.0

0.1

60–70°C

60–70%
80% CHP***

Stationary industrial, off-grid, back-up power

AFC Energy, Cummins, GenCell

Phosphoric acid fuel cell (PAFC)

0.3**

132.2

150–200°C

40–50%

80% CHP

Stationary utilities, commercial/industrial

Doosan, Fuji Electric

Molten carbonate fuel cell (MCFC)

0.0**

8.8

650°C

50%
80% CHP

Utilities, commercial/industrial

FuelCell Energy

Source: E4tech, Fuel Cells 2000, GenCell, Edison Investment Research. Note: *2020 estimates; **PAFC and MCFC systems are very high-output power, so small numbers of units shipped equate to high generation capacities. ***Combined heat & power.

Fuel cell types: PEMFCs preferred for transportation applications

The two most widely used types of fuel cells are proton exchange membrane fuel cells (PEMFCs) and solid oxide fuel cells (SOFCs). PEMFCs use a platinum catalyst to enable the reaction between hydrogen and oxygen to take place at a relatively low temperature. SOFCs do not use a platinum catalyst and depend instead on high temperatures to get the reaction going, which means that the fuel cells typically are made from exotic and expensive materials, which can be quite brittle (Ceres Power being a notable exception). It takes up to an hour to get an SOFC up to temperature, while PEM cells can start up in less than minute. In addition, while a single cell of a PEMFC and of an SOFC are similar in size, a typical PEMFC module is smaller than an SOFC module delivering the same power output. For these reasons PEMFCs are preferable to SOFCs for transportation applications, though they are used for stationary power generation applications as well. The other types of fuel cells are not very common.

Loop Energy’s ‘16-90-10’ competitive advantage

Changing the channel geometry

Exhibit 3: Conventional straight channel geometry

Exhibit 4: Loop Energy’s eFlow geometry

Source: Loop Energy

Source: Loop Energy

Exhibit 3: Conventional straight channel geometry

Source: Loop Energy

Exhibit 4: Loop Energy’s eFlow geometry

Source: Loop Energy

Loop Energy’s PEM cells differ from typical PEM cells from Ballard Power or Plug Power in that the cross-section of the channel across the fuel cell plate along which the oxygen (and coolant) passes and the channel that the hydrogen (and coolant) passes through both get narrower the further the channel is from the input, instead of being the same width all the way through. The narrowed geometry means that the gaseous fluids are squashed into a smaller volume and have to speed up as they pass through the plate, so although some of the oxygen and hydrogen molecules are removed en-route as they react to generate electricity, the absolute number of oxygen or hydrogen molecules passing over a unit of active area (where the reaction takes place) per second is constant across the fuel cell plate. We note that the team developing and testing Loop Energy’s technology includes automotive fuel cell engineers previously employed at Ballard, Daimler, Ford, General Motors and Mercedes Benz.

Patented channel design results in up to 16% less fuel consumed

The more hydrogen and oxygen molecules reacting in a unit area per second, the more electricity is produced per unit area per second, so the current density is higher and more water is produced. This limits the current density that can be achieved in conventional cells, because at higher levels there is so much water that it floods the catalyst, restricting the rate at which the oxygen reacts with the hydrogen. This does not happen in a Loop Energy eFlow cell because the gas is flowing more quickly, sweeping the water molecules away before they can accumulate on the catalyst. This means a stack of eFlow cells can generate more power per kilogram of hydrogen than a similar sized stack made from conventional fuel cells and requires up to 16% less hydrogen to deliver the same power output (see Exhibit 5). This equates to lower operating costs.

Loop Energy is currently targeting the ‘return-to-base’ fleet market, where the up to 16% fuel saving would translate to hundreds or thousands of dollars in savings for each vehicle in a fleet over a vehicle lifetime. It also results in higher operational uptime and a wider radius that can be served. Alternatively, the efficiency gain could be used to design a smaller, lighter and cheaper fuel cell module capable of providing the same output. Reducing the weight of the motive element gives more capacity for payload.

Patented channel design results in up to 90% higher peak power

Since eFlow cells do not have the same current density limitations as conventional fuel cells, the amount of gas reacting can be increased so the same sized stack can generate up to 90% more peak power than conventional stacks (Exhibit 6). This offers greater versatility to the OEMs and operators. Vehicle designers thus have the ability to almost double the power output to meet seasonal, terrain or payload related increases in drive cycle kWh/km energy requirements, without resorting to a larger fuel cell stack. Loop Energy’s T600 60kW unit is 75–100kg lighter than most alternatives.

Exhibit 5: Hydrogen consumption for conventional PEM fuel cell and eFlow compared

Exhibit 6: Peak power for conventional PEM fuel cell and eFlow compared

Source: Loop Energy

Source: Loop Energy

Exhibit 5: Hydrogen consumption for conventional PEM fuel cell and eFlow compared

Source: Loop Energy

Exhibit 6: Peak power for conventional PEM fuel cell and eFlow compared

Source: Loop Energy

Patented channel design results in up to 10 times better current density uniformity

As noted above, Loop Energy’s channel designs means that the absolute number of oxygen or hydrogen (and coolant) molecules passing over a unit of active area per second is constant across the fuel cell plate. Consequently, the amount of oxygen and hydrogen reacting per unit of active area per second, which is measured as current density, is almost constant across the fuel cell plate. In contrast, in a conventional fuel cell there is a lot of oxygen and hydrogen (and coolant) passing over a unit of active area per second in the area where the gas first enters the plate, but by the time the gas reaches the end of the channel at the other end of the plate, most of the oxygen or hydrogen has been used up and there is much less gas passing over a unit of active area per second. The difference between maximum and minimum current density is 43%. This matters because the area near the gas inlet, where there are many reactions of oxygen and hydrogen per second (ie the current density is high), gets much hotter than the area near the outlet, where there are fewer hydrogen/oxygen reactions taking place. The temperature differential and variation in concentration of water puts stress on the fuel cell membrane. Since heat and water are produced in a uniform fashion across the fuel cell plate in Loop Energy’s design, there is less stress on the membrane and the fuel cells have higher operating up-time, require less maintenance and last longer. This results in lower maintenance costs and higher reliability.

Exhibit 7: Comparison of current density across fuel cell plates

Source: Loop Energy

Superior performance from conventional materials

The channel design enables Loop Energy to achieve superior performance to conventional fuel cells while using the same materials such as membranes. This means it is able to take advantage of existing supply chains, which have already achieved reductions in the costs of materials and manufacturing through economies of scale. It also means that, while conventional fuel cell manufacturers have to design different membrane electrode assemblies (MEAs) and plates for applications requiring widely different power outputs, Loop Energy can use the same MEAs and plates in modules intended for applications with widely differing power requirements. This should enable Loop Energy to achieve cost reductions arising from economies of scale more quickly and to reduce the amount of design time required to create modules for new markets.

Competitive PEM technology

Loop Energy is not the only fuel cell company to create a mechanism to provide uniform delivery of gas to the active surface to improve cell performance. Toyota is also working on a solution, although this involves adding a titanium layer to the MEA, incurring extra cost.

Competitive technology – batteries

BEVs are several years ahead of FCEVs in terms of maturity because of their lower costs: £49,995 and upwards for the Toyota Mirai versus £29,790 and above for a Nissan Leaf. In addition, the infrastructure for charging cars (but not heavy-duty vehicles) is readily available, while the infrastructure for distributing hydrogen for FCEVs is not. Given the level of investment in battery powered passenger cars, it is not clear whether fuel cell technology will be able to take a material share of this market segment. Loop Energy is not addressing this market. However, there are other segments of the transportation sector where the superior range and refuelling time offered by fuel cell technology makes it a viable alternative to battery powered vehicles. This is summarised in the report Driving Change: How Hydrogen Can Fuel A Transport Revolution from the Centre for Policy Studies thinktank published in June 2020. This states ‘If the UK is to succeed in complying with its ambitions for decarbonising transport, and cleaner air, another solution will be needed for heavier forms of transport. And the most obvious contender – indeed, the only realistic one – is hydrogen.’

Fuel cells offer superior range and payload size for heavy-duty vehicles

The reason for this is that the practical range of a BEV is limited by an effect termed ‘mass compounding’: for every kilogram of battery mass added to increase range, the size and weight of other vehicle components must also be increased to maintain the performance and safety of the vehicle, and then additional batteries are required to shift the additional mass The mathematics around range is particularly compelling for larger vehicles like heavy goods vehicles. For example, the Mercedes eActros 300 has a range of around 185 miles and is equipped with three battery packs with a total capacity of 315kWh, which we estimate weighs around 2 tonnes. The gross vehicle weight is around 27 tonnes with a payload of 17.7 tonne. The longer-range version, the eActros 400, has a range of up to 250 miles, which is achieved by adding a fourth battery pack, taking the total capacity to 420kWh. The gross vehicle weight remains 27 tonne, but the maximum payload is reduced to 16.6 tonne. Tesla is now taking orders for a semi-truck, which is fully loaded at 37 tonnes, has a range of up to 500 miles and can recover 70% of range by charging for 30 minutes. Range is also an issue for buses, even those covering short routes in urban areas. Depending on topography and weather conditions, battery powered buses can currently drive around 225 miles per charge. This means they have to re-charge about once a day on a shorter route in a dense city. Standard depot-based charging systems for heavy-duty vehicles such as buses cost around US$50,000, while en-route ones can be two or three times that, excluding the cost of the land. This adds to the TCO. In contrast, extending the range of an FCEV only requires the hydrogen tank to be enlarged, not the fuel cell, thus adding significantly less weight per kWh of stored energy. This means that FCEVs typically offer a substantially higher range than BEVs. For example, Loop Energy’s first customer, Tevva, has fuel cell truck will have a range of up to 280 miles.

Fuel cells offer superior refuelling time and avoids investment in dedicated charging infrastructure

Refuelling time is also an area where FCEVs score more highly than BEVs. The Mercedes eActeos’s four battery packs take 100 minutes to charge. FCEVs can be fuelled eight to 10 times faster than BEVs. For example, the hydrogen tanks of a Tevva truck can be refilled in 10 minutes. This has significant economic implications for fleets of buses or delivery trucks as the asset cannot be used while it is being charged. In densely packed urban centres, movements inside bus depots have to be tightly orchestrated to accommodate charging. Bus companies also have to consider how to get the electricity to their charging stations, which may require conversations with utilities on costly grid upgrades. The Mass Transit journal calculated that a bus carrying 320kWh of energy would need recharging with approximately 250kWh of energy over a two- to four-hour period depending on chemistry. Most buses are out of service at night for six to eight hours. A 100-bus fleet would therefore require a minimum power requirement of 5MW, ideally 10–15MW to allow adequate flexibility in charge routines. The alternative would be to distribute 14 to 16 fast charge stations along bus routes. Neither option is simple to execute nor cheap.

Competitive technology – diesel

While the purchase price of a fuel cell truck is higher than that of a comparable diesel vehicle, DHL calculated that the TCO of the two types is similar. This is because the operating and maintenance costs of hydrogen trucks are lower and the service life is longer. According to Loop Energy, this means that heavier duty FCEVs can in future be economically viable without recourse to subsidies, although clearly the presence of subsidies should accelerate adoption.

Strong customer pipeline

Loop Energy’s customer adoption cycle comprises three stages: pilot ‘1’ phase, scale up ‘10’ phase and full production ‘100’ phase. There are currently 14 OEMs in the first phase, two in the second phase and one in the final phase.

Exhibit 8: Loop Energy’s publicly announced customers

Company

Country

Phase

Announced*

Segment

Innotest

Switzerland

Pilot

17 March 2022

Home energy/storage

Morello

Italy

Pilot

2 March 2021

Materials handling

NGVI**

South Korea

Pilot

17 August 2021

CNG*** and hydrogen modules for buses

Ecubes

Slovenia

Pilot

29 March 2021

Stationary power/storage

M&I****

Slovakia

Scale-up

25 July 2022

Hydrogen buses

Skywell

China

Scale-up

28 June 2021

Hydrogen buses

Tevva

UK

Full production

5 July 2022

Hydrogen trucks

Source: Edison Investment Research, Loop Energy, Notes: *Announcement date of latest phase. **Natural Gas Vehicles International. ***Compressed natural gas. ****Mobility & Innovation

Tevva

Tevva is Loop Energy’s most advanced customer, having recently entered the full production phase. The multi-year supply agreement, which has committed volumes exceeding US$12m till end-2023, was won following a competitive tender process. Initially, Loop Energy and a number of other leading fuel cell manufacturers were selected for a pilot phase in Q421. Loop Energy emerged as winner of the process with a scale-up sized order in April 2022. This was progressed to a full production sized order in July 2022. This not only demonstrates the superiority of Loop Energy’s product, and with a customer that markets its zero-emissions trucks based on TCO, but also the speed at which potential customers can move from pilot to full production phases.

Tevva is a zero-emission truck developer, founded in 2012. It is a private company based in the UK. It has raised US$108m since November 2021 (in two tranches) to commence production of its trucks in 2022. It offers both shorter range pure BEVs and longer-range battery vehicles with a fuel cell range extender (BFC hybrids). The BEVs have a range of up to 250km and a payload of 2.9 tonnes for a 7.5 tonnes truck. According to Tevva, TCO parity is achieved after 35,000km pa. They have a charge time of five hours. The BFC hybrids have an increased range of up to 450km and with a similar payload to the BEV (despite the increased range). The charge time for the hydrogen range extender should be c 10 minutes. Tevva expects first deliveries of its trucks in Q322, and that the volumes should ramp up very quickly. It plans to produce 3,000 trucks pa by 2023 for domestic and international markets. It has a long-term goal of more than 100,000 Tevva vehicles in service before the end of this decade.

Skywell

Skywell is the parent company of Nanjing Golden Dragon Bus Company. It is based in Nanjing, where the municipal government is planning to switch its battery electric bus fleet of c 7,000 vehicles to BFC hybrids. In April 2020, Loop Energy announced the start of a long-term commercial agreement worth c US$15m over a three-year period. Initially, Loop’s 50kW fuel cell is being used as a range extender. Skywell started scaling up the order in June 2021. Since then, there have been delays to the roll-out of hydrogen infrastructure in Nanjing, as Skywell applies for a longer-term permit to replace its temporary permit, which recently expired.

Natural Gas Vehicles International (NGVI)

NGVI is South Korean based company specialising in compressed natural gas (CNG) fuel storage and supply system modules for vehicles. It is also exploring fuel storage and supply system modules for hydrogen vehicles. Its major shareholders include some of Korea’s largest bus fleet operators. It thus has a unique level of appreciation for the impact of TCO on the speed of adoption of hydrogen technologies. It has a multi-year agreement with the Ulsan Metropolitan City for the supply of hydrogen electric transit buses. In the first phase, Ulsan is expected to invest US$2m by 2024 in testing and certification of hydrogen bus technologies. Ulsan plans to replace 40% of the city’s c 950 buses and establish 60 hydrogen refuelling stations by 2030, so one could expect a significant uplift in volumes once the slow-burn initial phase is complete. There is also potential to expand sales into the capital area, where Seoul Bus Company and TCHA Partners are expected to own more than 2,000 buses by 2023 with demand of more than 200 buses a year.

Mobility & Innovation (M&I)

M&I recently progressed into the scale-up phase with an order for 10 fuel cell systems to meet the growing demand for its hydrogen electric city bus. Loop is providing 30kW fuel cell systems for the single-decker buses. M&I believes it now has the opportunity to deliver the bus to some of Europe’s largest and most progressive markets following significant interest in a recent European tour. Throughout the tour, the bus had demonstrated increased fuel efficiency, allowing it to achieve further range with less onboard fuel storage. This has been a standout feature for fleet operators looking for a zero-emissions solution to electrify transit bus fleets.

Other

Italian company Morello is a global leader in extra heavy-duty equipment. It is targeting a possible scale-up phase by end-2022. In addition, Slovenian company Ecubes is currently in a pilot phase but has stated there is potential to increase orders to more than 50 fuel cell modules by H123.

Ramping up manufacturing

In anticipation of a significant uplift in orders, Loop Energy is investing in manufacturing facilities in Canada (British Columbia) and China (Shanghai). The facilities currently each have targeted capacity of 1,000 modules pa. Due to the larger floor space of the Shanghai facility (93,355 sq ft), compared to 35,250 sq ft currently used, there is potential to increase capacity to c 2,400 modules pa. This would bring total manufacturing capacity to 3,500 modules pa, which is enough to satisfy our base case volume sales forecasts until 2026 (see Financials section). In addition, the company has recently announced that it is expanding into the UK, in a location next to a growing group of manufacturers helping decarbonise road transport, including major customer Tevva. Loop has not yet specified the size of any potential production facility.

Targeted market

Loop Energy is primarily targeting the return to base fleet market, which comprises buses, heavy duty trucks (HDTs), medium duty trucks (MDTs) and light commercial vehicles (LCVs). LCVs comprise vans and pick-ups. Collectively, we refer to HDTs and MDTs as trucks. Total vehicles sold across all of these segments increased to a combined c 26m in 2021, up from c 25m in 2020, however, still below pre-COVID-19 levels of c 27m in 2019. Trucks and buses account for c 20% of these volumes (or c 5.3m units). The delivery truck market alone is worth US$100bn, according to zero emission truck manufacturer Tevva. Battery technologies are generally more advanced and command a c 2% market share of the combined truck and bus market. Fuel cells are mostly still at an early non-commercial stage and account for just c 0.1% (equating to c 2% of EV sales).

Regulatory developments in road transport are driving a shift from ICE vehicles to EVs. As discussed above, batteries are better suited to lighter vehicles, particularly for shorter distances while fuel cells are better suited to heavier vehicles, particularly with heavy loads and for longer distances. Hybrid BEVs with a fuel cell range extender (BFC hybrids) are another solution, particularly for long-distance commercial vehicles. According to Tevva, hydrogen and batteries are not alternatives to each other but partners in achieving an ideal solution. Batteries are the most efficient, lowest cost and lowest carbon option, but they are heavy and relatively slow to re-charge. Hydrogen is less cost efficient and less carbon efficient, but extremely lightweight and fast to replenish.

Emissions regulations

Transport accounts for roughly a quarter of global carbon dioxide emissions, with road transport contributing approximately 75% of these emissions. Although trucks and buses account for only 5–6% of annual vehicle sales, they are responsible for more than one-third of road transport emissions, based on data from the IEA and the International Organization of Motor Vehicle Manufacturers (OICA). This disproportionately high contribution means that they are an important area for decarbonisation.

Exhibit 9: Direct CO2 emissions by type of vehicle (Mt CO2)

Source: IEA, Edison Investment Research. Note: *APS is an IEA scenario based on country-level pledges. **NZE is an IEA scenario based on a pathway consistent with net zero global emissions by 2050.

Under the Paris agreement, global leaders have agreed to limit global warming to well below 2 degrees, while striving for 1.5 degrees. This requires country-level emissions reduction targets and regulation to ensure a credible pathway to net zero by mid-century. Over 125 countries have set or are considering net zero emissions targets. To help achieve this, governments are phasing out the sale of ICE vehicles over the next couple of decades or so. For example, the UK is phasing out new pure ICE cars and vans (up to 3.5 tonnes) sales from 2030, and other heavier ICE commercial vehicles between 2035 (3.5t to 25t) and 2040 (>26t). The EU commission has proposed only zero-emission new cars and vans (and not hybrids) can be sold from 2035, although the proposal has received some resistance from a few countries. The EU is currently reviewing existing regulations on heavy duty vehicles. A White Paper by the International Council on Clean Transportation (ICCT) suggests that all new heavy-duty vehicles should be zero-emission by 2040. China plans to make all new vehicles sold ‘eco-friendly’ by 2035, corresponding to 50% of new vehicles being BEVs, FCEVs or plug-in hybrids (BEV plus ICE range extender) and 50% being hybrids (ICE plus electric boost). Although the US does not yet have federal regulation, a MOU signed by 17 states, the District of Columbia and Canadian province, Quebec, commits to 30% of new MDT and HDT sales to be zero emissions by 2030 and 100% by 2050.

Based on scenario analysis by the IEA, current regulation and pledges by countries relating to vehicles emissions reduction is insufficient, on a 2030 timeframe, to put transport emissions on a pathway towards net zero by 2050. Thus, more needs to be done to accelerate the roll-out of zero-emissions vehicles if humanity is to comply with the Paris Agreement.

Vehicles OEMs

As a result of the tightening regulatory environment, many commercial vehicle OEMs are now exploring both BEVs and FCEVs and/or BFC hybrids. However, we note that they are more likely to move slowly in the development to avoid cannibalising sales of new ICE vehicles (until those sales are banned). We have reviewed over 100 commercial vehicle manufacturers, including both existing ICE OEMs and new EV OEMs, and found that more than 90% of them are developing BEVs and more than 50% are developing FCEVs and/or BFC hybrids. Importantly, the existing (ICE) top 10 truck OEMs and top 10 bus OEMs are all developing both BEVs and FCEVs and/or BFC hybrids. Despite this, there appear to be differences in strategies and visions between the OEMs. For example, Volvo believes that both battery and fuel cell technologies have a place in road transport. It has set up a fuel cell joint venture (named cellcentric) with Daimler Truck, which aims to have heavy fuel cell trucks on sale in the second half of the decade. It suggests that these trucks could use 300kW fuel cells and carry 65 tonne loads for distances of c 1,000km, with refuelling taking less than 15 minutes.

On the other hand, Traton, which is owned by the Volkswagen (VW) Group and whose brands include Scania and MAN, appears to be betting more heavily on battery technologies. In June 2022, MAN announced that it will be investing €100m over five years and plans to mass-produce high voltage batteries for electric trucks and buses from 2025, with targets of over 100,000 battery systems per year. The company suggests an electric MAN truck could have a range of over 1,000km from 2026 based on next-generation battery technology. Although Traton is also ‘quietly’ exploring fuel cell technology, its public stance is aligned with the rest of the VW Group with batteries as a key focus. The outgoing CEO of VW, Herbert Diess, recently suggested that his firm could overtake Tesla as the world’s largest BEV manufacturer from 2025. Stances of other leading truck and bus OEMs appear to fall somewhere in between Volvo and VW Group.

Market projections for 2030

As mentioned above, the market for commercial vehicles was 26m units in 2021, with trucks and buses accounting for c 20% or 5.3m units. Loop’s current target market is a function of growth in these units, penetration of zero carbon vehicles and the proportion of these that are BFC hybrids (or FCEVs), along with pricing trends for fuel cells. In our base case, we consider only the truck and bus markets. In addition, we estimate the market size for fuel BFC hybrid LCVs, which would provide upside to our valuation if there is traction in this segment. We make the following assumptions:

We use OICA data for truck, bus and LCV production combined with volume sales data for commercial vehicles. The OICA notes that the differentiation between trucks and LCVs depends on national and professional definitions and varies between 3.5 and 7 tonnes. In other words, some jurisdictions define trucks as more than 3.5 tonnes in mass, whereas others adopt 7 tonnes or more. The mid-point is roughly 5 tonnes.

Truck, bus and LCV sales growth at 5% pa, based on forecasts from Mordor Intelligence and Research & Markets, Valuate Research and Allied Market Research.

By 2030, EVs account for 10% of new truck sales, 28% of new bus sales and 34% of new LCV sales, based on the IEA’s estimates for EV penetration under its Actual Pledges Scenario (APS). We note that under a net zero by 2050 scenario, these penetration rates would be more aggressive and thus TAM would be higher (all other assumptions being equal).

Only BFC hybrids are used for trucks, buses and LCVs. However, we vary the relative size of the fuel cell range extender for trucks to become more fuel cell dominant. This is based on fuel cell economics being more compelling for heavier long-range vehicles. A 60kW fuel cell range extender is used in BFC hybrids for buses and 30kW for LCVs.

For trucks, BFC hybrids account for 30% of new EV sales by 2030. For buses and LCVs, BFC hybrids account for 50% and 15% of new EV sales respectively by 2030. This is the most subjective element of our assumptions as fuel cell penetration depends on economics (mostly relative to BEVs), which is a function of the green hydrogen price, and the availability of hydrogen charging infrastructure. These assumptions imply fuel cell unit sales of 337k pa for truck and buses and 1.7m pa for LCVs in 2030.

Exhibit 10 shows our estimate of market sizes for trucks and buses. Our base case is represented by output at 60kW per unit at c US$225/kW, which equates to a market size of c US$4bn in 2030. We note that if a fuel cell dominant solution becomes prevalent in BFC hybrid trucks then our estimated market size for trucks and buses increases to c US$17bn. This further increases to c US$24bn if pricing increases to US325/kW (and fuel dominant solutions prevail).

Exhibit 10: Estimated market size (US$bn*) in 2030 for BFC hybrid trucks, flexed by fuel cell price and size

Price per kW*

C$*

228

260

293

358

423

US$*

175

200

225

275

325

kW per unit**

60

3.2

3.6

4.1

5.0

5.9

120

5.6

6.4

7.2

8.8

10.4

180

8.1

9.2

10.4

12.7

15.0

240

10.6

12.1

13.6

16.6

19.6

300

13.0

14.9

16.7

20.5

24.2

Source: Edison Investment Research. Note: *Real, 2022. **Fuel cell size only flexed for HDTs, buses are kept constant at 60kW (range extenders).

Exhibit 11 shows our estimate of market sizes for LCVs at different prices per kW and BFC hybrid’s share of the EV market in 2030. Our market size estimates range from c US$5bn at US$175/kW and 10% share to c US$50bn at US$325/kW and 50% share. Any traction in this potential market for Loop Energy would provide upside to our valuation of C$4.5/share.

Exhibit 11: Estimated market size (US$bn*) for LCVs in 2030, flexed by fuel cell price and BFC hybrid share of EV market

Price per kW (US$ or C$)*

C$*

228

260

293

358

423

US$*

175

200

225

275

325

% share**

10%

5

6

7

9

10

20%

11

13

14

17

20

30%

16

19

21

26

30

40%

22

25

28

34

41

50%

27

31

35

43

51

Source: Edison Investment Research. Note: *Real, 2022. **BFC hybrid share of EV market ***Fuel cell size is kept constant at 30kW (range extenders).

Competitive landscape

We have identified more than 20 PEM fuel cell developers, some of which are competitors of Loop Energy. Others are focused more on other sales channels or are at an earlier stage. Globally, in our view, the two main competitors for Loop Energy are Ballard Power and Hyundai. Currently Ballard Power is the dominant market leader in buses, with c 80% share in North America and Europe and a c 40% share in China (according to Ballard’s May 2023 corporate presentation). In addition, it has a European partnership with Mahle and 50% of vehicles on the road globally have a Mahle component (according to Ballard Power). However, volumes are not currently at commercial levels, with the BFC hybrid/FCEV truck and bus market in aggregate of the order 1,000 units pa in 2021. We believe that Loop Energy’s product differentiation and targeting of early movers and disruptors should see it gaining significant market share in the coming years. We also note that some of its competitors’ key relationships are with large ICE OEMs or component providers, which are lacking motivation to move rapidly due to the potential cannibalisation of existing sales.

Exhibit 12: PEM technology developers

Pure listed

Pure private

Auto

Industrial/ conglomerate

Observations

Ballard Power

Y

Main competitor of Loop Energy

Bramble Energy

Y

Earlier stage

CEA Liten

R&D centre

Cummins

Y

Largest shareholder of Loop Energy

EKPO Fuel Cell Technologies

Y

Expensive. Lacking direction

Freudenberg

Y

More focused on components

GM Hydrotec (General Motors)

Y

Probably more for inhouse sales

Horizon Fuel Cell Technologies

Y

Forward integrated into making trucks

Hypoint

Y

Focused on airspace. Advanced air-cooling technology

Hyundai

Y

Main competitor of Loop Energy

Hydrogenics

Y

Acquired by Cummins. Less advanced technology

Intelligent Energy

Y

Earlier stage

Michelin/Faurecia (Symbio)

Y

Competitor in Europe

Nedstack

Y

Earlier stage

Panasonic

Y

Earlier stage

Plug Power

Y

More focused on hydrogen electrolysers than fuel cells

PowerCell Sweden

Y

Good technology. Deal with Bosch in Europe

PowerUP

Y

Earlier stage

Proton Motor Power Systems

Y

Product more suitable for stationary applications

SFC Energy

Y

PEM fuel cells early stage. More advanced in methanol fuel cells

TECO 2030

Y

More focused on Marine

Toshiba Energy Systems

Y

Earlier stage

Toyota

Y

Good but more focused on selling stacks. Better traction in China.

Source: Edison Investment Research

Management

Kent Thexton (chair and director): Kent Thexton joined Loop in June 2022 as board chair and director. He previously spent 16 years at Sierra Wireless, as director and chair of the board for 13 years, followed by three years as CEO and president. Kent has also contributed to the boards of several public companies, including Redknee Solutions, now known as Optiva, a Canadian provider of telecommunication operations software and services, and O2, a British telecommunications company. Kent also has extensive experience leading Canadian capital venture companies, including as the managing director at OMERs Ventures and the founder of ScaleUP Venture Partners.

Ben Nyland (CEO and director): Ben Nyland was appointed president of Loop in 2015 and chief executive officer of Loop in 2016, following more than three years as the company’s vice president, operations. Prior to joining Loop, Mr Nyland spent over 10 years in a variety of senior management positions, including as president of Rampworth Capital Services, JBN Developments, Exro Technologies and Maclean Group Marketing. He holds a bachelor of science in computer engineering from the University of Alberta.

Damian Towns (CFO and Corporate Secretary): Damian Towns joined Loop in 2021 as chief financial officer and brings over 25 years of experience in progressive and rapid-growth companies, with 15 years leading at executive level. Mr Towns joined Loop Energy from Photon Control, where, as the CFO and corporate secretary, he guided Photon’s exponential growth and maximised shareholder revenue through its acquisition. Prior to his role at Photon Control, Mr Towns served as an executive director, CFO and corporate secretary at Liberty Defense, and spent over 12 years as CFO and corporate secretary at Marimaca Copper, formerly Coro Mining. He is a Canadian CPA and holds a first-class honours degree in accounting and finance from the University of Otago, New Zealand.

George Rubin (CCO): George Rubin joined Loop in 2020 as managing director, commercial strategy, and then as chief commercial officer. Mr Rubin was previously co-founder, vice president and subsequently president of Day4 Energy, where he helped grow company operations from a research and development start-up in 2003 with a total of five staff, to 265 employees and sales in excess of US$350m in seven years. As CEO of Heliotrope Technologies, Mr Rubin developed a minimum viable product strategy, early adopter customer base and ultimately a sales pipeline in excess of US$40m in under two years.

Daryl Musselman (COO): Dr Musselman joined Loop in 2020, bringing over 30 years of experience from the renewable energy and automotive sectors. Dr Musselman was VP, operations and engineering and VP, manufacturing operations at Svante, where he successfully delivered a world-first point source carbon capture plant removing 30 tons of carbon dioxide per day. As VP, engineering at Endurance Wind Power, Dr Musselman and his team designed, installed and maintained approximately 700 new turbines in the UK with an estimated combined installed cost in excess of £250m. His other executive roles include COO at Bionic Power, and VP, engineering and technology development at Xebec Adsorption. He began his career in the automotive industry at General Motors of Canada Co. and led advanced engineering efforts for motorsports company Multimatic. A registered professional engineer, Dr Musselman has bachelor of applied science and master of applied science degrees in mechanical engineering from the University of Waterloo, a PhD in engineering science from Western University, and has completed the Executive Development Course at McGill University.

Valuation

DCF approach

We value Loop Energy using a DCF analysis, which reflects the long-term value and growth prospects of the company. A peer valuation analysis is not meaningful as Loop Energy’s peers are all loss-making. Our DCF approach suggests a valuation of C$4.5/share, which is more than double the current share price (C$2.12). Our valuation is highly subjective, due to the early stage of the company, absence of track record and nascent nature of the fuel cell market, thus we provide a detailed sensitivities analysis.

Key assumptions and drivers for our cash flow model are as follows:

As many countries are seeking net zero emissions by 2050, we adopt a DCF period over 2022–50 to sufficiently capture the transition for road transport from ICE vehicles to EVs. As mentioned in the ‘Addressable market’ section, some countries or regions are phasing out ICEs significantly in advance of 2050. See the financials section for the detailed assumptions that underpin our FCF model.

We adopt a terminal value after the DCF period based on a TGR of 3%, in line with long-term global GDP estimates.

We assume a nominal CoC of 15%. We acknowledge that this should reduce as Loop Energy progresses on its path to profitable growth and thus de-risks. Furthermore, we note that once Loop Energy becomes operationally cash generative, it would likely raise debt capital to fund growth, which would improve its capital structure. Conversely, we note that venture capital providers (VCs) typically apply a cost of capital of 20% or more for early-stage companies, with as yet undeveloped markets. That being said, VCs would likely require a premium return on their investment (and hence a higher CoC) versus investors in publicly listed companies (on a like-for-like basis) as their investment is not readily realisable. As seen in our Sensitivities section, applying a CoC above 16% to our base case forecasts would suggest that Loop Energy is overvalued.

We assume that in-the-money stock options are exercised which adds an estimated C$1.8m to the equity value; however, dilutes the number of shares used in our equity value per share calculation by 1.9m (average exercise price estimated at C$0.95/share). This dilutes the total number of shares used in our per share valuation to 36.0m from 34.1m (the number of ordinary shares at 30 June 2022).

Cost of capital versus terminal growth rate

The valuation is significantly more sensitive to CoC than TGR. This is due to our long explicit forecast period of 2022–50. As Loop Energy de-risks, one could expect our valuation to increase in multiples. For example, assuming a CoC of 13%, just 2pps below our 15% base case, would increase the valuation by more than 2 times to C$9.9/share, which is more than four times the current share price. A CoC of 10% would increase the valuation to c C$29/share, c 14x the current share price. We show numerous other valuation sensitivities in the Sensitivities section below.

Exhibit 13: Valuation sensitivities to TGR versus CoC (C$/share)

Terminal growth rate

0%

1%

2%

3%

4%

5%

6%

Cost of capital

17%

1.3

1.4

1.5

1.6

1.7

1.9

2.1

16%

2.5

2.6

2.7

2.9

3.1

3.3

3.5

15%

3.9

4.1

4.3

4.5

4.8

5.2

5.6

14%

5.9

6.1

6.4

6.8

7.2

7.8

8.4

13%

8.5

8.9

9.3

9.9

10.6

11.4

12.5

12%

12.0

12.6

13.3

14.2

15.3

16.7

18.6

11%

16.7

17.6

18.8

20.2

22.1

24.5

27.9

10%

23.2

24.7

26.6

29.0

32.2

36.6

43.3

% change at CoC = 15%:

-14%

-10%

-5%

0%

6%

14%

23%

Source: Edison Investment Research

Peer comparison

We have identified 12 listed peers for Loop Energy. These companies are pure-play fuel cell and/or electrolyser manufacturers, with various fuel cell technologies including PEM, solid oxide, alkaline, methanol and molten carbonate. Most peer valuation metrics are not meaningful as none of these companies is making an operating profit, and unsurprisingly therefore they are all recording negative operating cash flow. However, on an EV/sales basis, Loop Energy is significantly undervalued compared to its closest peers. Of the 12 peers, three of them are PEM fuel cell producers: Ballard Power, PowerCell Sweden and Proton Motor Power Systems. Plug Power and ITM Power also have PEM technologies, however, they are more focused on PEM hydrogen electrolysers. We also note that the stationary segment is proving the most important for Proton Motor Power Systems, which has developed an electric fuel cell hybrid system that combines a standard PEM fuel cell module and an energy storage system. This leaves Ballard and PowerCell Sweden as Loop Energy’s two main listed competitors, although PowerCell Sweden has an exclusivity deal with Bosch in Europe, so they are unlikely to cross paths in competitive tenders there. As shown in Exhibit 15, based on 2024 consensus sales forecasts, Loop Energy has an EV/sales ratio of 0.9 compared to Ballard Power’s 6.5x and PowerCell Sweden’s 17.8x.

Exhibit 14: Consensus revenue (US$m)

Exhibit 15: EV/sales

Source: Edison Investment Research, Refinitiv as at 21 August 2022.

Source: Edison Investment Research, Refinitiv as at 21 August 2022.

Exhibit 14: Consensus revenue (US$m)

Source: Edison Investment Research, Refinitiv as at 21 August 2022.

Exhibit 15: EV/sales

Source: Edison Investment Research, Refinitiv as at 21 August 2022.

It is also worth highlighting share price performance over the last few years. We consider the closest four PEM peers below, however, similar trends are noticeable amongst the wider fuel cell/hydrogen peer set. Shares in fuel cell/hydrogen stocks made sharp upwards moves between 2019 and January 2021, which resulted in Ballard Power’s, PowerCell Sweden’s and Proton Motor Power’s share prices increasing by 14, 12 and 19 times respectively. These share price gains started to reverse from the end of January 2021, with a mostly downwards trajectory since then until the last month or so when share prices have started slight recoveries. Ballard Power and Proton Motor Power’s shares have lost c 80% since peak and PowerCell Sweden has lost c 65%.

Exhibit 16: The rise and fall of PEM fuel cell peers share prices

Company

Ticker

Current share price (local)

Market cap (US$m)

Min share price (2019)

Max share price

Date of max share price

Max/Min

Current % max

Current/min

Ballard Power

BLDP.TO

C$10.03

2,252

3.68

52.23

26/1/2021

14x

19%

2.7x

PowerCell Sweden

PCELL.ST

SEK156.15

864

37.9

454

26/1/2021

12x

34%

4.1x

Proton Motor Power

PPS.L

11.00p

255

3.24

62.5

27/1/2021

19x

18%

3.4x

Source: Edison Investment Research, Refinitiv data as at 14 September 2022

Loop Energy floated on 25 February 2021, roughly a month after the fuel cell sector’s recent peak. We compare its price performance relative to its PEM peers in Exhibit 17. Loop Energy’s share price has lost 87% since IPO, which is far more than its peer group, whose share prices have lost 50–73% over the same period. This is despite Loop Energy making significant commercial progress, which should de-risk its investment case, and is possibly due to Loop Energy’s smaller market cap and lower liquidity.

Exhibit 17: Relative share price performance for PEM fuel cell producers since Loop Energy’s IPO date

Source: Edison Investment Research, Refinitiv data as at 14 September 2022

Financials

As mentioned in the Valuation section, we have prepared a financial model for the period 2022–50 to sufficiently reflect the growth prospects of Loop Energy, as road transport transitions from ICE to EVs as part of a global objective of net zero emissions by 2050.

We make the following assumptions:

For near-term volume sales growth, we adopt company guidance of purchase orders (POs) of 100 and 500 in FY22 and FY23, respectively, and apply the mid-point of guidance of 60–65% of POs converting to recognised sales in FY22 and 80% conversion for FY23. We then assume 1,000 units in FY24 followed a constant annual growth rate to smooth FY24 sales to our 2030 volume sales projection, derived from the truck and bus market model.

For 2030–50 volumes sales, we use our model for the transition of new trucks and buses sales to 100% EVs by 2050. See the addressable market sections for assumptions to 2030. We keep the share of BFC hybrid buses at 50% of new electric bus sales and increase the share for BFC hybrid trucks from 30% to 50%.

We assume that the average size of fuel cell range extenders increases from 60kW to 80kW by 2050, representing an increase in the mix of the larger trucks, which would require larger range extenders. Loop Energy is scheduled to launch its 120kW module during the IAA Transportation conference in Hanover, Germany on 20–25 September 2022.

We note that if fuel cell dominant trucks prevail, then module sizes could increase up to c 300kW for the heaviest trucks. This could dramatically increase our sales (in kW) forecasts and thus revenue.

We assume that Loop Energy has a c 10% share of the combined BFC hybrid truck and bus market in 2030, which equates to c 30,000 units and this increases to c 375,000 units by 2050 but represents just a 5% share of the combined BC hybrid truck and bus market. Our assumption for 2030 could potentially be fulfilled through Tevva alone as Tevva have an ambition of selling 100,000 vehicles by 2030.

Our revenue forecasts are derived by applying a mark-up to our cost of sales projections. These are determined based on volumes sales forecasts applied to production cost per kW assumptions, which vary over time (due to technological advancements) and according to volumes sales (due to economies of scale as manufacturing capacity ramps up). Our mark-up assumptions are also a function of volume sales. We assume a 40% mark up for annual sales of 1,000 units, decreasing to 26% for annual sales of 500,000 or more units.

We use Strategic Analysis Inc’s cost per kilowatt analysis for the US Department of Energy (DOE) (published June 2021) as a starting point for our production cost per kilowatt assumptions. It publishes cost per kilowatt projections for annual production rates of 200, 500, 1,000, 10,000 and 100,000 and with trends over time (2021, 2025 and 2030). We assume an exchange rate of C$1.30/US$ over the forecast period.

We make adjustments based on discussions with Loop Energy, such that we assume relatively higher costs per kilowatt in the near term, however, trending towards the DOE’s ultimate target of US$60/kW (in 2016 US$ real terms) for fuel cells for trucks by 2045. In 2025, our cost assumptions are 45% above the DOE’s and in 2030, 2035 and 2040 they are 40%, 20% and 0% higher, respectively. We are comfortable with this as there are large sensitivities in the DOE’s own workings. In its most recently published analysis in 2021, it increased its previous cost per kilowatt projections for 2025 by c 70%.

We assume operating costs of C$34m in FY22 (including depreciation), which is the mid-point of company guidance (C$32–36m). This represents a 70% increase over FY21. We assume that operating costs (excluding depreciation) increase by 10% pa in FY23–25 then 5% pa for the rest of our forecast period, due to the strong long-term growth prospects of the company. This is in addition to our modelled production costs, which are a direct cost of sales (and not included in our operating costs forecasts). We model depreciation separately based on an assumed average 15-year lifespan for manufacturing facilities (mostly plant and machinery) and other fixed assets.

We assume working capital reduces to 40% of sales in FY25, then further reduces to 20% of sales from FY30 onwards as the company progresses into a strong commercial growth phase.

We assume capex of C$27.5m in FY22 and C$20m in FY23. From FY24 onward, we model capex according to the average incremental capacity requirement of the following two years. We are thus assuming investment in factory capacity 18 months ahead. Our capex per kilowatt of annual capacity assumptions are a function of total production capacity, as we believe facilities should become cheaper (on a per unit basis) with experience and scale. We estimate existing facilities cost c C$290/kW (once capex is adjusted for engineering, technology and innovation) and believe that this could reduce to C$100/kW once capacity reaches 10,000 units pa then further decreases (by 20%) to C$80/kW for capacity of 100,000 or more units pa. We interpolate for capacities in between these assumptions. Notwithstanding this, we assume C$100/kW for the extension of the existing Shanghai facility from 1,000 units pa to 2,400 units pa, estimated by end 2023. As a cross-check, we estimate that Ballard’s average capex for its facilities, which have a capacity of 20,000 units pa (or 1.2GW pa), is c C$100/kW. We assume the same level of capex (C$100/kW) for 50% less capacity (10,000 units pa versus 20,000 units pa) for Loop Energy, as we believe the first movers have enabled it to be more capital efficient.

We estimate that share-based payments of c C$2m are made during FY22, which is double the c C$1m reported during H122. For simplicity, we do not assume any further share-based payment from FY23. However, we note there is a risk of dilution.

In our financial summary (Exhibit 29), we assume long-term debt of c C$60m in FY23. This is because, based on our forecasts, the company will need to raise capital. Although, for simplicity, we assume debt capital in our forecasts, in reality the company will likely raise equity capital as it has negative operational cashflow. As such, we do not assume any increased interest charge in FY23.

Expect positive gross margin from 2025

In our base case, we expect Loop Energy to generate a positive gross margin from 2025. We estimate that the gross margin will decrease from 28% in 2025 to 22% in 2035, as volume sales ramp up and manufacturers seek to improve competitiveness by reducing prices. We estimate the company becomes operationally profitable from 2028, with EBIT margin increasing to 13% in 2030 and 15% in 2035, despite prices and gross margin trending downwards. This is due to a reduction of operating costs including depreciation as a percentage of sales from 12% of sales in 2030 to 7% in 2035 as volume sales grow by a CAGR of 27% over the same period.

Exhibit 18: Loop Energy – forecast volumes sales (units, LHS) and price per kW (C$/kW, RHS)

Source: Edison Investment Research

Exhibit 19: Loop Energy – forecast gross, EBITDA and EBIT margins

Source: Edison Investment Research

Expect operational cash flow positive in 2027

In our base case, Loop Energy has just sufficient capital to fund its plans for FY22; however, it will need additional funding for FY23. Along with its Q222 results, the company announced it is filing for a base shelf prospectus (BSP) that will allow it to raise up to C$100m, in any number of tranches, at short notice, over the next 25 months. We expect Loop Energy to become operationally cash flow positive in 2027 and assume that it will be able to raise debt capital to fund growth from 2028. Until then, we estimate the company will require c C$250m in equity funding, on top of its net cash of c C$40m at the end of H122 and C$9.75m grant received from the Canadian government.

Exhibit 20: Loop Energy – forecast CFFO, working capital and capex (LHS) and FCF (RHS) (all in C$m)

Source: Edison Investment Research. Note: CFFO – cash flow from operations.

Sensitivities

Loop Energy is an early-stage company in nascent markets with high long-term growth potential. It has no track record of profitability or cash flow generation. Thus, our forecasts are highly subjective and sensitive to numerous assumptions. We test some of these sensitivities in this section.

Loop Energy’s 2030 market share

In our base case, we assume Loop Energy commands just a 10% share of the combined BFC hybrid truck and bus market in 2030. This equates to sales of c 30,000 units. Of course, the market might not grow as rapidly as we are projecting (based on the IEA’s 2030 Actual Pledges Scenario), in which case Loop Energy’s implied market share (at 30,000 units) would be higher. Assuming the market grows as we are projecting, if Loop Energy’s 2030 share is 17.5% (equating to 52,500 units), our valuation would increase by 88% to C$8.6/share. Conversely, if its market share is 2.5% (equating to 7,500 units), our valuation would at first glance reduce by 100% to C$0.0/share. However, this may correspond with a scenario where the market takes off slower than expected, such that 7,500 units is a sizeable share of a notably smaller but promising market. Under this circumstance, one might appreciate that Loop Energy’s investment case has de-risked, and we note that for CoCs of 13% or lower, the shares would still provide significant upside. Likewise, for the other market share inputs the investment case would have de-risked by 2030 and in scenarios with a lower CoC, our valuation would be multiples of the current share price under most shown variations.

Exhibit 21: Valuation sensitivities to Loop Energy’s 2030 market share* (C$/share)

2030 BFC hybrid market share

2.5%

5.0%

7.5%

10%

12.5%

15.0%

17.5%

Implied 2030 unit sales

7,500

15,000

22,500

30,000

37,500

45,000

52,500

Cost of capital

17%

0.0

0.0

0.7

1.6

2.8

3.4

4.4

16%

0.0

0.3

1.7

2.9

4.2

5.1

6.2

15%

0.0

1.5

3.1

4.5

6.1

7.2

8.6

14%

1.0

3.2

5.1

6.8

8.7

10.0

11.6

13%

3.0

5.5

7.8

9.9

12.1

13.8

15.7

12%

5.9

8.9

11.7

14.2

16.8

18.9

21.2

11%

10.3

13.9

17.2

20.2

23.4

25.9

28.7

10%

17.1

21.4

25.3

29.0

32.8

35.9

39.2

% change at CoC = 15%:

-100%

-67%

-31%

0%

35%

59%

88%

Source: Edison Investment Research. Notes: *Of the combined BFC hybrid (or FCEV) truck and bus market.

We also perform sensitivity analysis on when we expect Loop Energy to become operational cash flow positive under each scenario and the required equity capital to get there. If the company achieves c 7,500 units sales by 2030, then we believe it will become operationally cash flow positive in 2030, c 15,000 units and c 22,500 units correspond with operational cash flow positive in 2028, whereas c 30,000 or more units equate to operational cash flow positive in 2027. The reason higher unit sales beyond 30,000 units do not imply earlier operational cash flow break-even is due to the ramp up in sales being skewed towards the late 2020s. For instance, our volume sales growth profile for 52,500 units requires c 3,750 units in 2026 (and 7,260 units in 2027). This is similar to the profile for 30,000 units, which requires c 3,100 units in 2026 (and c 5,500 units in 2027). The difference in unit sales and operational cash flow generation becomes more pronounced towards 2030. The reason equity requirements are similar and there is no particular trend across the sensitivities is due to the differing working capital and capex requirements of each growth profile, offsetting the increasing trend in operational cash flow (as units sales increases).

Exhibit 22: Operating cash flow sensitivities to Loop Energy’s 2030 market share**

2030 BFC hybrid market share

2.5%

5.0%

7.5%

10%

12.5%

15.0%

17.5%

2030 unit sales

7,500

15,000

22,500

30,000

37,500

45,000

52,500

CFFO break-even (year)

2030

2028

2027

2027

2027

2027

2027

Equity capital requirement* (C$m)

300

250

230

250

250

280

290

Source: Edison Investment Research. Note: *We assume that debt capital can be raised to fund growth from the year following operational cash flow break-even. **Of the combined BFC hybrid (or FCEV) truck and bus market.

Loop Energy’s 2050 market share

As we are conservative in our base case, and in recognition of potentially increasing competition, we assume that Loop Energy’s market share decreases to 5% by 2050. If this reduces to 2% market share, our valuation would reduce by 54% to C$2.1/share. Conversely, if it were to increase to 8% market share, our valuation would increase by 36% to C$6.2/share. Again, we note the investment case would have significantly de-risked by 2050 and that in scenarios with a lower CoC, our valuation

Exhibit 23: Valuation sensitivities to Loop Energy’s 2050 market share* (C$/share)

2050 market share*

2%

3%

4%

5%

6%

7%

8%

CoC

17%

0.4

0.9

1.3

1.6

1.9

2.2

2.4

16%

1.1

1.9

2.4

2.9

3.3

3.7

4.0

15%

2.1

3.1

3.8

4.5

5.2

5.7

6.2

14%

3.4

4.8

5.8

6.8

7.7

8.5

9.2

13%

5.0

7.0

8.5

9.9

11.2

12.3

13.4

12%

7.2

10.0

12.1

14.2

16.0

17.7

19.3

11%

10.2

14.1

17.3

20.2

22.9

25.4

27.7

10%

14.3

20.0

24.6

29.0

33.0

36.7

40.1

% change at CoC = 15%:

-54%

-32%

-16%

0%

13%

26%

36%

Source: Edison Investment Research. Note: *Of the combined BFC hybrid (or FCEV) truck and bus market.

Fuel cell penetration of the EV market by 2050

In our base case, we assume 50% penetration by BFC hybrid (or FCEV) trucks and buses of the EV market by 2050. Of course, this would imply a much lower penetration of the EV market for all vehicles (including cars and LCVs). If we reduce our assumption to 35% penetration, our valuation reduces by 30% to C$3.2/share. Conversely, if it were to increase to 65% penetration, our valuation would increase by 26% to C$5.7/share. We note the investment case would have significantly de-risked by 2050 and that in scenarios with a lower CoC, our valuation would be multiples of the current share price under most shown variations.

Exhibit 24: Valuation sensitivities to fuel cell penetration of the EV market by 2050 (C$/share)

2050 penetration of EV market*

35%

40%

45%

50%

55%

60%

65%

Cost of capital

17%

0.9

1.1

1.4

1.6

1.8

2.0

2.2

16%

1.9

2.2

2.5

2.9

3.2

3.5

3.7

15%

3.2

3.6

4.1

4.5

5.0

5.4

5.7

14%

4.9

5.6

6.2

6.8

7.4

7.9

8.5

13%

7.3

8.2

9.0

9.9

10.7

11.5

12.2

12%

10.5

11.7

12.9

14.2

15.3

16.4

17.5

11%

15.0

16.8

18.5

20.2

21.8

23.4

24.9

10%

21.5

24.1

26.5

29.0

31.3

33.6

35.8

% change at CoC = 15%:

-30%

-20%

-10%

0%

9%

18%

26%

Source: Edison Investment Research. Note: *For trucks and buses.

Module unit size

In our base case, we assume that the average size of units sold increases from 50kW in 2025 to 60kW in 2030 and then further to 80kW in 2050. We believe this is conservative as it assumes only BFC hybrids with relatively small fuel cell range extenders are used rather than fuel cell dominant solutions. The latter could require significantly larger modules of up to 300kW for the heaviest trucks. Furthermore, it likely under-appreciates penetration of larger trucks. Tevva’s 7 tonne trucks are using a 60kW range extender, so one can envisage its planned 12 and 18 tonne trucks perhaps using 100–150kW range extenders. If average unit size were to increase to 110kW, our valuation would increase by 44% to C$6.6/share. Conversely, if average unit size decreases to 50kW, our valuation would decrease by 44% to C$2.5/share. Again, we note the investment case would have significantly de-risked by 2050 and that in scenarios with a lower CoC, our valuation would be multiples of the current share price under most shown variations.

Exhibit 25: Valuation sensitivities to average unit size (C$/share)

Average unit size (kW)

50

60

70

80

90

100

110

Cost of capital

17%

0.5

0.9

1.3

1.6

2.0

2.3

2.7

16%

1.4

1.9

2.4

2.9

3.4

3.9

4.3

15%

2.5

3.2

3.9

4.5

5.2

5.9

6.6

14%

4.0

5.0

5.9

6.8

7.7

8.7

9.6

13%

6.1

7.3

8.6

9.9

11.2

12.4

13.7

12%

8.8

10.6

12.4

14.2

15.9

17.7

19.5

11%

12.7

15.2

17.7

20.2

22.7

25.2

27.8

10%

18.2

21.8

25.4

29.0

32.6

36.2

39.8

% change at CoC = 15%:

-44%

-30%

-15%

0%

15%

30%

44%

Source: Edison Investment Research

Production costs

In our base case, we assume that production cost per kilowatt is 30% above that projected by the US DOE in 2030. We are comfortable with this as there are large sensitivities in the DOE’s own workings. In its most recent published analysis in 2021, it increased its previous cost per kilowatt projections for 2025 by c 70%. We trend our cost per kilowatt assumptions to match the DOE’s ultimate cost per kilowatt projection by 2045. If we assume that Loop Energy’s cost per kilowatt is 60% above the DOE’s in 2030, our valuation increases by 27% to C$5.8/share. The reason it increases is that we apply the same price mark-up assumptions across all sensitivities, as we do not vary our volume sales forecasts as a function of price per kilowatt. Of course, in practice, if the price point is too low, Loop Energy would potentially lose market share (and experience decreased volumes). Conversely, if we assume that Loop Energy’s cost per kilowatt is the same as the DOE’s in 2030, our valuation decreases by 28% to C$3.3/share, subject to the above-mentioned limitations in this sensitivity analysis. We note the investment case would have significantly de-risked by 2030 and that in scenarios with a lower CoC, our valuation would be multiples of the current share price under most shown variations.

Exhibit 26: Valuation sensitivities to production cost per kW (C$/share)

% increase on DOE's 2030 cost per kW

0%

10%

20%

30%

40%

50%

60%

Sales price (US$/kW)*

205

232

259

287

314

341

369

Production cost (US$/kW)*

154

175

195

216

236

257

277

Cost of capital

17%

0.6

0.9

1.3

1.6

2.0

2.3

2.6

16%

1.7

2.1

2.5

2.9

3.2

3.6

4.0

15%

3.3

3.7

4.1

4.5

5.0

5.4

5.8

14%

5.4

5.9

6.4

6.8

7.2

7.7

8.1

13%

8.4

8.9

9.4

9.9

10.4

10.9

11.3

12%

12.5

13.1

13.6

14.2

14.7

15.2

15.7

11%

18.4

19.0

19.6

20.2

20.8

21.4

21.9

10%

27.0

27.7

28.3

29.0

29.6

30.2

30.8

% change at CoC = 15%:

-28%

-18%

-9%

0%

9%

18%

27%

Source: Edison Investment Research. Note: *In 2030 and based on volume sales of c 30,000 units.

Capex

In our base case, we assume that capex per kilowatt of annual manufacturing capacity decreases from an estimated c C$350/kW for existing capacity to C$100/kW once capacity reaches 10,000 units pa then further decreases (by 20%) to C$80/kW for 100,000 or more units pa. If capex for 100,000+ units pa increases to C$110/kW, then our valuation decreases by 82% to C$0.8/share. Conversely, if capex decreases to C$50/kW (at 100,000+ units pa), our valuation increases by 82% to C$8.3share. We note the investment case would have significantly de-risked when volumes reach 10,000 units pa and then even further by 100,000 units pa and that in scenarios with a lower CoC, our valuation would be multiples of the current share price under most shown variations.

Exhibit 27: Valuation sensitivities to capex per kW (C$/share)

Capex per kW (C$/kW)

at 100,000 units pa

50

60

70

80

90

100

110

at 10,000 units pa

63

75

88

100

113

125

138

Cost of capital

17%

4.5

3.6

2.6

1.6

0.6

0.0

0.0

16%

6.1

5.1

4.0

2.9

1.8

0.7

0.0

15%

8.3

7.0

5.8

4.5

3.3

2.0

0.8

14%

11.1

9.6

8.2

6.8

5.4

3.9

2.5

13%

14.8

13.2

11.5

9.9

8.2

6.6

4.9

12%

19.9

18.0

16.1

14.2

12.2

10.3

8.4

11%

27.0

24.7

22.5

20.2

17.9

15.7

13.4

10%

37.1

34.4

31.7

29.0

26.3

23.5

20.8

% change at CoC = 15%:

82%

55%

27%

0%

-27%

-55%

-83%

Source: Edison Investment Research

Operating costs

In our base case, we assume that operating costs grow at 5% pa over 2026–50 to reflect our strong long-term growth projections. If they were to decrease to 2% pa, then our valuation increases by 28% to C$5.8/share. Conversely, if operating costs increase to 8% pa, our valuation decreases by 42% to C$2.6/share. We note as the investment case de-risks, scenarios with a lower CoC imply a valuation of multiples of the current share price under most shown variations.

Exhibit 28: Valuation sensitivities to percentage growth pa in operating costs over 2026-50 (C$/share)

% growth in opex*

2%

3%

4%

5%

6%

7%

8%

Cost of capital

17%

2.5

2.3

2.0

1.6

1.2

0.8

0.3

16%

3.9

3.6

3.3

2.9

2.4

1.9

1.3

15%

5.8

5.4

5.0

4.5

4.0

3.4

2.6

14%

8.3

7.9

7.4

6.8

6.1

5.4

4.4

13%

11.7

11.2

10.6

9.9

9.1

8.1

7.0

12%

16.4

15.8

15.0

14.2

13.1

11.9

10.5

11%

23.0

22.3

21.3

20.2

18.9

17.3

15.5

10%

32.6

31.6

30.4

29.0

27.3

25.2

22.8

% change at CoC = 15%:

28%

20%

11%

0%

-12%

-26%

-42%

Source: Edison Investment Research


Exhibit 29: Financial summary

C$'000

2019

2020

2021

2022e

2023e

31 December

PROFIT & LOSS

Revenue

 

 

468

546

1,424

4,233

27,961

Cost of Sales

0

0

(6,250)

(12,797)

(37,858)

Gross Profit

468

546

(4,826)

(8,564)

(9,896)

EBITDA

 

 

(3,396)

(7,473)

(23,544)

(39,449)

(43,869)

Operating Profit (before except.)

(3,828)

(8,208)

(24,701)

(42,430)

(47,547)

Exceptionals

0

0

0

1,625

3,250

Operating Profit

(3,828)

(8,208)

(24,701)

(40,805)

(44,297)

Other

(69)

(200)

(275)

0

0

Net Interest

(863)

(518)

(91)

(91)

(91)

Profit Before Tax (norm)

 

(4,760)

(8,926)

(25,067)

(42,521)

(47,638)

Profit Before Tax (reported)

 

(4,760)

(8,926)

(25,067)

(40,896)

(44,388)

Tax

0

0

0

0

0

Profit After Tax (norm)

(4,760)

(8,926)

(25,067)

(42,521)

(47,638)

Profit After Tax (FRS 3)

(4,760)

(8,926)

(25,067)

(40,896)

(44,388)

Minority interests

0

0

0

0

0

Discontinued activities

0

0

0

0

0

Average Number of Shares Outstanding (m)

17.5

18.0

31.2

33.9

34.1

EPS - normalised (C$)

 

 

(0.27)

(0.50)

(0.80)

(1.25)

(1.40)

EPS - normalised and fully diluted (C$)

(0.24)

(0.44)

(0.75)

(1.19)

(1.32)

EPS - reported (C$)

 

 

(0.27)

(0.50)

(0.80)

(1.21)

(1.30)

Final distributed dividend per share (C$)

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

n/m

n/m

n/m

n/m

n/m

EBITDA Margin (%)

n/m

n/m

n/m

n/m

n/m

Operating Margin (before GW and except.) (%)

n/m

n/m

n/m

n/m

n/m

BALANCE SHEET

Fixed Assets

 

 

3,072

3,328

5,737

29,657

39,089

Intangible Assets

0

500

0

0

0

Tangible Assets

2,216

2,311

3,459

26,528

33,774

Right of use assets

400

286

1,801

2,362

3,858

Investments/Other

456

231

477

767

1,458

Current Assets

 

 

3,746

6,924

78,356

18,703

39,086

Stocks

0

1,142

1,280

2,540

8,388

Debtors

1,578

2,581

10,046

16,164

30,698

Cash

2,168

3,201

67,030

0

0

Other

0

0

0

0

0

Current Liabilities

 

 

(6,271)

(8,987)

(6,327)

(9,131)

(22,008)

Creditors

(2,717)

(4,735)

(5,437)

(8,241)

(21,118)

Short term borrowings

(3,554)

(4,252)

(890)

(890)

(890)

Long Term Liabilities

 

(1,427)

(607)

(2,611)

(3,287)

(64,522)

Long term borrowings

(1,427)

(607)

(1,569)

(1,707)

(60,475)

Other long term liabilities

0

0

(1,042)

(1,579)

(4,047)

Net Assets (ex minority)

 

(880)

658

75,155

35,943

(8,354)

CASH FLOW

Operating Cash Flow

 

(2,707)

(7,723)

(20,359)

(40,079)

(46,347)

Net Interest

(510)

(299)

145

0

0

Tax

126

17

(209)

0

0

Capex

(942)

(716)

(6,662)

(27,500)

(12,420)

Acquisitions/disposals

(750)

0

0

0

0

Financing

8,008

9,994

91,975

410

0

Dividends

0

0

0

0

0

Other

(194)

(229)

(623)

0

0

Net Cash Flow

3,032

1,043

64,267

(67,168)

(58,767)

Opening net debt/(cash)

 

1,706

2,813

1,658

(64,571)

2,597

HP finance leases initiated

(589)

139

(1,615)

0

0

Other

(3,550)

(27)

3,577

0

0

Closing net debt/(cash)

 

2,813

1,658

(64,571)

2,597

61,365

Source: company accounts, Edison Investment Research

Contact details

Revenue by geography (H122)

2880 Production Way
Burnaby
BC V5A 4T6
Canada
+1 604-222-3400
loopenergy.com

Contact details

2880 Production Way
Burnaby
BC V5A 4T6
Canada
+1 604-222-3400
loopenergy.com

Revenue by geography (H122)

Management team

Chair and director: Kent Thexton

CEO and Director: Ben Nyland

Kent Thexton joined Loop in June 2022 as board chair and director. He previously spent 16 years at Sierra Wireless, as director and chair of the board for 13 years, followed by three years as CEO and president. Kent has also contributed to the boards of several public companies, including Redknee Solutions, now known as Optiva, a Canadian provider of telecommunication operations software and services, and O2, a British telecommunications company. Kent also has extensive experience leading Canadian capital venture companies, including as the managing director at OMERs Ventures and the founder of ScaleUP Venture Partners.

Ben Nyland was appointed president of Loop in 2015 and chief executive officer of Loop in 2016, following more than three years as the company’s vice president, operations. Prior to joining Loop, Mr Nyland spent over 10 years in a variety of senior management positions, including as president of Rampworth Capital Services, JBN Developments, Exro Technologies and Maclean Group Marketing. He holds a bachelor of science in computer engineering from the University of Alberta.

CFO: Damian Towns

CCO: George Rubin

Damian Towns joined Loop in 2021 as chief financial officer and brings over 25 years of experience in progressive and rapid-growth companies, with 15 years leading at executive level. Mr Towns joined Loop Energy from Photon Control, where, as the CFO and corporate secretary, Mr Towns guided Photon’s exponential growth and maximised shareholder revenue through its acquisition. Prior to his role at Photon Control, Mr Towns served as an executive director, CFO and corporate secretary at Liberty Defense, and spent over 12 years as CFO and corporate secretary at Marimaca Copper, formerly Coro Mining. He holds a first-class honours degree in accounting and finance from the University of Otago, New Zealand.

George Rubin joined Loop in 2020 as managing director, commercial strategy, and then as chief commercial officer. Mr Rubin was previously co-founder, vice president and subsequently president of Day4 Energy, where he grew company operations from a research and development start-up in 2003 with a total of five staff, to 265 employees and sales in excess of $350m in seven years. As CEO of Heliotrope Technologies, Mr. Rubin developed a minimum viable product strategy, early adopter customer base and ultimately a sales pipeline in excess of $40m in under two years.

Management team

Chair and director: Kent Thexton

Kent Thexton joined Loop in June 2022 as board chair and director. He previously spent 16 years at Sierra Wireless, as director and chair of the board for 13 years, followed by three years as CEO and president. Kent has also contributed to the boards of several public companies, including Redknee Solutions, now known as Optiva, a Canadian provider of telecommunication operations software and services, and O2, a British telecommunications company. Kent also has extensive experience leading Canadian capital venture companies, including as the managing director at OMERs Ventures and the founder of ScaleUP Venture Partners.

CEO and Director: Ben Nyland

Ben Nyland was appointed president of Loop in 2015 and chief executive officer of Loop in 2016, following more than three years as the company’s vice president, operations. Prior to joining Loop, Mr Nyland spent over 10 years in a variety of senior management positions, including as president of Rampworth Capital Services, JBN Developments, Exro Technologies and Maclean Group Marketing. He holds a bachelor of science in computer engineering from the University of Alberta.

CFO: Damian Towns

Damian Towns joined Loop in 2021 as chief financial officer and brings over 25 years of experience in progressive and rapid-growth companies, with 15 years leading at executive level. Mr Towns joined Loop Energy from Photon Control, where, as the CFO and corporate secretary, Mr Towns guided Photon’s exponential growth and maximised shareholder revenue through its acquisition. Prior to his role at Photon Control, Mr Towns served as an executive director, CFO and corporate secretary at Liberty Defense, and spent over 12 years as CFO and corporate secretary at Marimaca Copper, formerly Coro Mining. He holds a first-class honours degree in accounting and finance from the University of Otago, New Zealand.

CCO: George Rubin

George Rubin joined Loop in 2020 as managing director, commercial strategy, and then as chief commercial officer. Mr Rubin was previously co-founder, vice president and subsequently president of Day4 Energy, where he grew company operations from a research and development start-up in 2003 with a total of five staff, to 265 employees and sales in excess of $350m in seven years. As CEO of Heliotrope Technologies, Mr. Rubin developed a minimum viable product strategy, early adopter customer base and ultimately a sales pipeline in excess of $40m in under two years.

Principal shareholders

(%)

Apollo FC Holdings

20.38

Allan Collings

3.88

Neil W Murdoch

3.56

Schroders

2.11

Ben Nyland

0.77



General disclaimer and copyright

This report has been commissioned by Loop Energy and prepared and issued by Edison, in consideration of a fee payable by Loop Energy. 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.

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 2022 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 Loop Energy and prepared and issued by Edison, in consideration of a fee payable by Loop Energy. 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.

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 2022 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

More on Loop Energy

View All

Industrials

Loop Energy — Commercial orders underway

Latest from the Industrials sector

View All Industrials content

Research: TMT

Applied Graphene Materials — Playing with the big boys

Applied Graphene Materials (AGM) has announced a supply agreement with one of the world’s largest car care brands, which will be using AGM’s graphene dispersions in the manufacture of its automotive detailing products. While the value of this agreement has not been disclosed, it is significant because it is the first with a major player in the car care sector.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free