This report is an updated version of the report published on 15 June 2022 at 08:48 AM GMT+1.

Velocys PLC (LON: VLS)

Velocys PLC is an FTSE AIM All-Share index-listed United Kingdom-based fuels technology company. The company provides decarbonisation solutions to the aviation industry. VLS is engaged in providing Fischer-Tropsch technology to generate low carbon and transport fuel from municipal solid waste & waste woody biomass for the aviation industry.

On 21 June 2022, VLS will have its Annual General Meeting.

Growth Prospects

• Appointment of CFO: On 09 June 2022, VLS announced the appointment of Philip Sanderson as Chief Financial Officer ("CFO") effective 22June 2022. He has an extensive experience of capital project development and project financing.
• Collaboration with TOYO: The Company has strengthened its collaboration with TOYO as the Company’s FT technology got selected for an e-fuels project by a consortium of six leading Japanese companies.
  

Key Risks 

• Increase in Operating Loss: The Company had shown a year-on-year increase in operating loss during FY21.
• Bank of England Meeting: The Bank of England meeting scheduled for 16 June 2022 may continue the cycle of rate hikes. Thus, it may adversely impact UK equities.
• Weak UK GDP Numbers: According to the Office for National Statistics, the UK GDP grew only 0.2% for the three months through April 2022 after 0.8% in the previous three-month period.

Key Fundamental and Shareholders Statistics of Velocys PLC.

Lansdowne Partners (UK) LLP is the most significant shareholder as it holds nearly 255.16 million shares.

FY21 Financial Highlights (for 12 months ended 31 December 2021, as of 17 May 2022)

(Source: Company Filings)

• Revenue Growth: Group revenue increased to £8.3 million in FY21, compared to revenue of £0.2 million in FY20, with decent traction in organic growth.
• Profitability: The Company had narrowed down its basic and diluted loss per share from 1.05 pence during FY20 to 0.78 pence for FY21.
• Increase in Net Assets: VLS has shown a solid increase in net assets from £13.1 million at the end of FY20 to £29.7 million as of 31 December 2021.
  

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 14 June 2022, VLS’ shares were closed at GBX 4.83, up by around 1.37% from the previous day closing price. Stock 52-week High and Low were GBX 17.94 and GBX 3.78, respectively.

On a daily chart, the stock price is sustained around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at 37.81, approaching an oversold territory.

Valuation Methodology: EV/Sales Approach (FY23E) (Illustrative) 

Business Outlook

The Company has shown solid growth in top-line business as it generated significant revenue from licensing of technology and supplying the reactors and catalysts with technical & project service. Moreover, VLS had recently signed two large contracts for sustainable aviation fuel ("SAF") with Southwest Airlines and IAG. Meanwhile, VLS has a growing pipeline of customer opportunities leading to additional technology licensing opportunities across three continents. In a nutshell, VLS remained committed to enhance its top-line business through established strategic alliances with the technology and engineering partners.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the significant commercial opportunities, impressive collaborations, decent FY21 results, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Velocys PLC at the closing market price of GBX 4.83 (as of 14 June 2022), with lower-double digit upside potential based on 13.62x EV/NTM Sales (approx.) on FY23E sales (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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