Taking a closer look – Part 1 of the top-to-bottom Buy List review
13th October 2022 |
In last week’s update, we reminded you that our mission in Frontier Tech Investor is to identify the most exciting small-cap, tech-focused stocks on the London Stock Exchange that offer explosive growth potential.
During the current market downturn, it would be easy to deviate from this strategy.
After all, the major indices are displaying some scary numbers.
The FTSE 100 is down 9.29% this year and the S&P 500 is down 25.43% at the time of writing.
However, remaining firm in our strategy will allow you to take positions in companies listed here in the UK that are part of the world’s big future opportunities, and at mouthwatering prices.
The way we see it, the time to be active and building your portfolio is when the rest of the market is terrified, and “fear hype” has kicked into overdrive.
Over the next three weeks, we’ll be sending you a top-to-bottom review of our Buy List to remind you of and reassure you on our positive long-term opinion on each company included.
AB Dynamics (LSE: ABDP)
AB Dynamics provides vehicle testing systems.
The company ensures automotive manufacturers meet regulatory standards, and that the latest generation of cars are safely built for real-world use.
These include autonomous and electric vehicles (AVs and EVs) which are starting to hit the roads in huge numbers.
AB Dynamics has had a solid year which has seen its testing services gain European New Car Assessment Programme (Euro NCAP) approval. Euro NCAP is a regulatory body that assesses the safety performance of new vehicles in Europe.
Last month, the company also completed the £31.2 million acquisition of advanced simulator provider Ansible Motion, which has a commercial partnership with Honda.
The deal will greatly improve AB Dynamics’ expertise and push the boundaries of its simulator vehicle testing.
Showing a 31.71% gain, AB Dynamics is one of the best performers in our Buy List. In spite of macro-economic conditions, its ability to deliver value to shareholders points to solid long-term potential.
We reiterate our HOLD recommendation on the stock since it is above the Buy-up-to price. You can find the original recommendation here.
Aston Martin Lagonda Holdings (LSE: AML)
This British manufacturer of luxury cars has had a difficult year.
The company has faced mounting financial pressures, with the closure of its showrooms during lockdown contributing to a debt burden of around £1 billion.
However, in July, Saudi investment group Saudi Public Investment Fund (PIF) contributed £650 million of capital to help service Aston Martin’s debts. Of this, £78 million in shares were bought by PIF, which also took part in a £575 million rights issue, making it the company’s second-largest investor.
You may recall that we recommended that you accept the four-to-one rights issue (see here).
Aston Martin’s share price has now adjusted, and even fallen below the price of the shares issued in the rights issue, which were 103GBp apiece. At the time of writing, Aston Martin’s share price is 90.12GBp.
We’re aware that this is a large decline from its share price of 700GBp this time last year, even after factoring in the rights issue.
From a commercial standpoint, we believe the backing from PIF will provide Aston Martin with sufficient capital to electrify its vehicle fleet. Also, while issues with the pound might seem worrying, we think the British marque’s appeal will grow in important overseas markets, such the United States, and particularly for the increasingly popular DBX.
Aston Martin is also seeking to launch its first electric vehicle by 2025.
We believe that Aston Martin is giving itself the best chance of future relevance in the sports and supercar markets by remaining on point vis-à-vis the EV trend but also developing further within a brand that’s synonymous with British luxury. However, it may take longer than we first envisaged.
In the meantime, we reiterate our HOLD recommendation on the stock. You can find the original recommendation here.
AMTE Power (LSE: AMTE)
AMTE Power develops battery technology for the automotive, oil and gas, and energy storage industries.
We primarily liked AMTE for its position as a British manufacturer in the hugely important, high-expertise industry of battery technology.
The company’s involvement in EVs, which are gaining momentum as the world seeks to tackle the urgent issue of climate change, was also key.
AMTE is in the early stages of commercialisation.
In July, the company announced the details of its first mega-factory, which will be located in Dundee, Scotland, and is due to come online in around three years.
It anticipates that the facility will produce about 8 million cells per year, generating around £200 million of annual revenue.
This is about nine times the company’s current market capitalisation, so its upside potential after the mega-factory open looks significant.
AMTE also has memorandums of understanding (MOU) with some large automotive customers, including BMW.
For the time being, AMTE continues to develop batteries at its Thurso facility, supported by government grants and guidance.
Although currently reflecting a 57% loss in the Buy List, we believe AMTE’s factory opening will inject new momentum into its share price, and we can’t ignore the importance of home-grown manufacturing in the current economic environment.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Argo Blockchain (LSE: ARB)
Argo is a miner of cryptocurrencies, namely bitcoin.
Crypto mining is an energy intensive process that traditionally uses non-renewable energy sources.
Argo differs from a “run-of-the-mill” crypto miner in its use of renewable energy in the mining process. For example, its facility in Canada runs 100% on hydro and wind power.
Given the global green energy transition and the threat of tighter mining restrictions from governments (including the United States), we believe Argo will thrive.
Argo continues to mine bitcoin at an impressive rate, following the installation of 20,000 new S19J Pro machines at its Texas facility in August, when it mined 235 bitcoin, an increase on the 219 bitcoin mined the previous month.
However, a recent operational update shows the company mined 215 bitcoin at end-September, down on the August figure.
Further energy price pressure and the adjustment in mining difficulty made the month harder. It’s worth noting that Argo’s margins improved, and its mining is still profitable, though, at this stage, the company is not.
This spooked the market significantly and sent Argo’s stock price into a spiral.
As a bitcoin miner, the company’s stock value is closely tied to the value of bitcoin in fiat-converted prices. It’s for this reason that we remain optimistic about Argo’s future, particularly when we apply our long-term vision of bitcoin’s importance and value into the mix.
In a stock-market rout and a crypto winter, Argo easily becomes one of the least popular stocks on the London Stock Exchange. However, we think it’s one of the most exciting.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Aura Energy (LSE: AURA)
Aura Energy is an early-stage mining company.
Aura mines uranium oxide at its Tiris project in Mauritania, Africa. Uranium oxide is an essential ingredient used in the generation of nuclear energy.
Early-stage mining companies can offer huge upside potential. Moving through the phases of exploration, discovery and, finally, production promises huge future cash flows if the production phase is executed.
Aura is on the cusp of uranium production.
In July, Aura revealed that the uranium grades at its Tiris project were between 500% and 600% higher than previously expected.
This is significant, and could fast-track the Tiris project, which is expected to produce 800,000 lbs of uranium oxide per annum. It’s also expected to begin production in 2024.
Given the current uranium spot price of $38.94, Aura could soon be churning out multi-million-dollar revenues, and transform into the mining powerhouse we’ve envisaged for some time.
What’s more, the nuclear energy industry is experiencing a resurgence. Russia’s invasion of Ukraine has exposed the dire need for energy independence, and a cheaper, greener future of energy which nuclear can provide.
We look forward to seeing the part Aura has to play in the nuclear energy transition.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Blancco Tech Group (LSE: BLTG)
Blancco provides data erasure software. It wipes sensitive data from electronic devices without a trace being left behind.
Cyber-attacks are becoming more frequent, as the world becomes more interconnected.
For example, in the UK, a business is successfully hacked every 19 seconds. Cyber-attacks are expected to cost the global economy $10 trillion by 2025.
This gives extra importance to Blancco’s technology.
Given turbulent macroeconomic conditions this year, Blancco has performed soundly.
For the year ended 30 June 2022 (FY 2022), the company reported a 9% increase in revenue on FY 2021. Operating profits were also up 6% across the two periods.
In June, Blancco completed the acquisition of US-based erasure specialist WipeDrive for $8.5 million.
We believe this will help improve Blancco’s data erasure expertise, and help it become a market leader in the cybersecurity space.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Clean Power Hydrogen
Clean Power Hydrogen (CPH) provides hydrogen electrolysers.
The company is defying the industry standard for electrolysers. In separating hydrogen and oxygen atoms, it uses a “membrane-free” electrolyser that provides a cheaper and more efficient way of obtaining hydrogen. Conventional electrolysers use expensive metals such as platinum as a membrane to split atoms.
The technology is in the early stage of commercialisation, and clean energy companies are starting to use it.
For example, in May 2021, CPH deployed its first membrane-free electrolyser to a UK company (Octopus Hydrogen).
For the year ended 31 December 2021, CPH recorded revenues of £28,000, down from £107,000 the previous year.
Also, between 2020 and 2021, operating losses almost doubled from £1.8 million to £3.4 million. We acknowledge the losses, but are very aware that this is still really a pre-commercialisation company that’s still developing its core products.
Given the tailwinds behind green hydrogen and the wider green energy transition, we believe the outlook for CPH is exciting, and that the company has huge potential.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
EQTEC (LSE: EQT)
EQTEC is a waste-to-energy company, converting biomass into syngas using gasification technology. The syngas is then used to power green energy appliances.
Currently, the company has one gasification plant in operation. Its Movialsa plant in Spain has so far produced 5.9MW of electricity.
However, EQTEC has a huge pipeline of plants under development across Europe, including in the UK, Greece, and Italy. You can learn more about them here.
EQTEC is moving closer towards commercial production on several of these.
In particular, its Italian facility will begin full commercial operation by the end of this year. The facility will process 7,000 metric tonnes of biomass annually.
EQTEC is also set to sell its UK Deeside project, which converts waste into hydrogen, in February 2023. The sale to an “unnamed investor” is expected to be for £15 million.
We see the move as a positive one. It will provide substantial funding to expedite its backlog of projects under development.
From a financial standpoint, the company is making solid progress.
EQTEC recorded H1 2022 revenues of €2.98 million, up 520.8% increase on the H1 2021 performance.
Its losses across the same two periods almost halved, falling from €4.04 million to €2.28 million.
This is hugely encouraging to see, and shows that EQTEC is moving closer to operational efficiency. We think the stock is still greatly undervalued by the market considering the direction of the energy segment, the importance of ESG investing, and the overall appetite for new, innovative energy companies.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
That’s all for this week.
Stand by for Part Two and Part Three of the full Buy List review, coming to you over the next two weeks.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
