Sell Alert: Spirent Communications (SPT) + unleashing the SAF market
18th August 2022 |
Years from now, US President Joe Biden will be remembered for two things.
Firstly, will likely be his being the oldest US president at inauguration (78 years and 61 days to be precise).
Secondly, and more importantly, being a “green” president who made everlasting contribution to combatting climate change.
On 12 August 2022, the Biden administration signed a landmark climate bill which will likely propel the world’s green energy transition to new heights.
This was following a 220 to 207 vote in favour of the bill, with all Democrats in favour of it and all Republicans against it.
The bill will provide around $370 billion in funding to the US economy in the form of grants, credits and loans, to help reduce carbon emissions.
Funds will be targeted towards industries at the heart of this green energy transition, including electric vehicles (EVs) and nuclear power.
But what really matters for this edition of Frontier Tech Investor is that it will encourage uptake of sustainable aviation fuels (SAF).
SAF is “green” airplane fuel derived from biomass and feedstocks.
SAF can reduce carbon emissions by up to 80% over the lifecycle of the fuel compared to the jet fuel it replaces, so its importance in helping economies become greener shouldn’t be downplayed.
Biden has long been an advocate for SAF. In fact, he has stated intentions of increasing SAF production in the United States to three billion gallons per year by 2030, which is 100 times more than what the entire world will produce this year.
Under the terms of the climate bill, SAF uptake is being encouraged in two ways.
Firstly, SAF producers will receive tax credits worth $1.50 per gallon for SAF with 50% lower lifecycle greenhouse gas emissions than standard jet fuel. This credit will be extended to $1.75 per gallon for even greater emissions reductions.
Secondly, $300 million will be given in research and development grants to companies that make, store and blend SAF in the United States.
The beauty of SAF is that its composition is very similar to standard kerosene jet fuel. This means that a complete overhaul of aircraft systems isn’t required to accommodate SAF, meaning that SAF uptake should be fairly seamless.
In our view, the new SAF incentives will greatly encourage SAF production.
But who in the Frontier Tech Investor buy list is set to benefit from this?
Velocys (LSE: VLS) is a producer of SAF. It uses its Fischer-Tropsch catalytic converter technology to create SAF from woody biomass.
Although based in the UK, Velocys has a large presence in the United States. So, President Biden’s SAF plans will likely have a significant impact on Velocys’ prospects.
Velocys is currently developing a plant in Mississippi that will produce 35 million gallons per year of SAF for airline customers. The plant is due to become operational in 2026.
Velocys’ stated that the tax credits will help to underpin the financing of the plant.
In addition, Velocys expects the legislation to allow the “finalisation” of a memorandum of understanding (MOU) signed with Southwest Airlines in November 2021.
In the deal, Velocys will supply Southwest Airlines with 219 million gallons of SAF over a 15-year period, all of which is to be produced at Velocys’ Mississippi plant.
Following the passing of the climate bill, Velocys’ share price rallied.
With Velocys finding itself at the heart of not only the green energy transition, but also the SAF transition, our positive, long-term view is stronger than ever.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
SELL Spirent Communications (LSE: SPT)
Spirent is a provider of testing and assurance solutions.
It ensures that critical technology is optimised and tested before it hits the market. In this context, technology includes 5G networks, cybersecurity, and even autonomous systems.
In truth, the company hasn’t really delivered the share price gain we envisioned.
In the main, we saw its potential in delivering 5G testing solutions, in line with the emerging 5G trend.
However, 5G still only has limited coverage, and is yet to really take off.
As a result, Spirent’s share price hasn’t had any strong upwards momentum behind it. Commercial activity has also been limited.
With little indication that its prospects will change, we are going to be exiting our position in the stock.
Action to take: SELL Spirent Communications (LSE: SPT) now.
Price bought at: 246.00p
Current price: 268.60p
Gain/loss: 9%
Buy list update
Aston Martin Lagonda Holdings (LSE: AML)
Aston Martin is a manufacturer of luxury cars.
After a difficult lockdown period, where footfall at its showrooms was reduced, Aston Martin is showing powers of recovery.
For the six months ended 30 June 2022 (H1 2022), the company recorded revenues of £541.7 million. This is a 9% increase on the H1 2021 figure.
In addition, Aston Martin reported strong sales figures for its car models.
In particular, its DBX model saw a 40% increase in orders between H1 2021 and H2 2022.
However, the company is still running at a loss.
For H1 2022, Aston Martin recorded an operating loss of £89.9 million. This is a 137% increase on the £38 million figure recorded for H1 2021.
The company also has debts in excess of £1 billion.
We acknowledge the losses and debts, but we remain optimistic that Aston Martin can improve its balance sheet.
This is due to its ongoing partnership with investment group Saudi Public Investment Fund (PIF), which you can learn more about in our 21 July 2022 update.
In particular, the fund is helping to service a large portion of Aston Martin’s debts, providing a “substantial liquidity cushion” and a foundation for future growth.
What’s more, we believe that it’ll go a long way in helping Aston Martin make its fleet of cars entirely electric by 2030.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
We’d love to hear from you…
It’s not often we put a note in our weekly updates asking for your questions. Of course, you can drop us a line at any time, which we endeavour to answer as quickly as possible. However, given the current state of the markets, it’s likely that you may have more burning questions than usual about the Frontier Tech Investor buy list.
It could be about the company’s prospects, its current predicament or even a concern you may have.
As a reminder, we’re not allowed to give direct personal advice. So, we can’t tell you how you should distribute your portfolio, how much money you should invest, and things of that nature.
Please email your questions to editorial@southbankresearch.com by 5pm on 22 August 2022.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our buy list.
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Volex (LSE: VLX) – Volex is a global manufacturer of power and connectivity products. This includes power cables, fibre optics and charging plugs. It might sound a little basic, but these are critical mechanisms which are powering some of the key technologies of the modern day. These technologies include electric vehicles (EVs), artificial intelligence (AI) and big data networks. Volex has huge credibility behind it, particularly as it does business with some of most widely recognised companies in the world, including Tesla. You can find the original recommendation here.
Team17 (LSE: TM17) – Team17 is a video game publisher. It has a large collection of games which contains some of the most popular games of the gaming world. One of these is Worms, the enthralling last-man-standing survival game born out of the nineties gaming boom. Team17 is keeping up with the times and offers its games across a number of contemporary technology platforms. It has even flirted with the idea of non-fungible tokens (NFTs), a megatrend which could revolutionise the gaming industry. At a time where sceptics think online gaming will come off the boil following the ease of lockdown restrictions, Team17 keeps gamers coming back for more. You can find the original recommendation here.
Pod Point Group (LSE: PODP) – The UK’s inadequate (for now) electric vehicle (EV) charging network is threatening to bring the EV transition to a halt. By 2032, the shortfall of EV charge points in the UK is estimated to reach 250,000. However, Pod Point’s innovative range of EV charging solutions could go a long way in ensuring this deficit is reduced. The company’s charging technology is fit for homes, public charging bays, lamp posts and commercial buildings, and can ensure that the EV transition reaches all areas of the UK. In our view, Pod Point can unlock the potential of the UK’s EV charging network. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
