The only certainty in the aviation industry right now…
30th June 2022 |
Over the past few weeks, a catalogue of flight delays and cancellations have been stealing most of the aviation industry’s headlines.
However, what really matters for this edition of Frontier Tech Investor is that despite all the uncertainty, one thing remains certain.
Have no doubt: sustainable aviation fuel (SAF) will be powering the aircraft of the future.
Before going any further, it’s useful to understand what SAF is.
SAF is biofuel. In many cases, it’s obtained from feedstocks and biomass under a heat-intensive extraction process.
SAF provides an 80% reduction in carbon emissions over the lifecycle of the fuel, compared to traditional jet fuels such as kerosene.
What’s more, existing aircraft systems don’t require a mass overhaul to use it, because SAF has a similar chemical composition to kerosene.
Over the past week, there have been some major developments in the airline industry, which show the growing adoption of SAF.
- On 21 June 2022, Sweden-based Braathens Regional Airlines completed the first flight of a commercial aircraft powered entirely by SAF. The 1hr 20 flight from Malmo to Stockholm was powered using SAF from SAF producer Neste Oyj.
- On 22 June 2022, aerospace corporation Airbus completed the world’s first helicopter flight powered entirely by SAF. A H225 aircraft flew with both engines powered by SAF in Berlin, Germany.
- On 19 June 2022, Australian flag carrier Qantas Airways and Airbus announced they would invest $200 million apiece in Australia’s SAF industry to accelerate SAF adoption in that country.
Market projections also suggest SAF use is taking off.
In 2020, the SAF market was valued at $72.1 million. It is projected to reach $6.3 billion by 2030, a near 100-fold increase.
What’s more, SAF will likely account for 2% of total aircraft fuel by 2025 – and this is 20 times the amount of SAF used in 2019.
We believe current news flow regarding SAF is a positive for Frontier Tech Investor holding Velocys (LSE: VLS).
Velocys is a provider of SAF fuel. Its Fischer-Tropsch technology converts biomass and forest residue into SAF.
Velocys is introducing large commercial airlines to SAF.
For instance, it has a 15-year commercial contract with Southwest Airlines in the pipeline. The deal will provide Southwest Airlines with 575 million gallons of Velocys’ SAF, starting in 2026.
In addition, we believe Rolls-Royce Holdings (LSE: RR) could be a beneficiary from growing SAF uptake.
Crucially, the company is staying relevant to an evolving aviation industry, by exploring SAF uses on its commercial aircraft.
In particular, Rolls-Royce has an agreement with Air BP to use a 10% SAF blend for all engine testing at its Derby, Bristol and Dahlewitz facilities.
We’re fully aware of the share price decline of Rolls-Royce over the past year or so. Its share price of 83.64GBp is well down from its 12-month high of 161.91GBp.
In truth, it has found it difficult to recover from a torrid lockdown period, which brought the aviation industry to a halt.
However, we still believe that Rolls-Royce has long-term potential.
As well as driving sustainability in the aviation industry, it’s driving sustainability in the energy industry too.
In particular, it has plans to bring its very own small nuclear reactor (SMR) online in 2029. SMRs are nuclear reactors which are smaller, less expensive and more mobile than traditional nuclear energy plants.
With the world’s nuclear transition gaining fresh momentum, which you can be reminded of here, we believe Rolls-Royce could be a beneficiary.
We reiterate our BUY recommendations for Velocys and Rolls-Royce. You can find the respective, original recommendations here and here.
Buy list update
Gfinity (LSE: GFIN)
Gfinity is an e-sports and gaming solutions provider.
E-sports is one of the latest technology crazes of the twenty-first century. It sees players compete in video gaming competitions at commercial centres.
Gfinity has built a reputation as a leading, global provider of e-sports tournaments.
It has hosted some of the most prestigious tournaments, including the ePremier League. This is one of the world’s biggest e-sports competitions, where gamers, each representing one of the 20 English Premier League football clubs, compete for a cash prize.
Gfinity continues to host major e-sports tournaments.
On 6 June 2022, the company announced it has extended its ongoing relationship with Formula One (F1) for an extra year, to deliver the F1 e-sports series by Aramco. The partnership has been ongoing since 2017.
Specifically, Gfinity will deliver F1 Pro Championship, which is regarded as the “pinnacle” of F1 e-sports by the industry.
The Gfinity arena in London will host the event, which will commence in July 2022.
According to Gfinity CEO John Clarke, the tournament broke viewing records last year, with around 23 million views across digital platforms. This reflects a 103% increase on the previous year.
We appreciate that Gfinity’s share price has been on a downward trajectory over the past year. It has a current share price of 0.83GBp.
In part, it has suffered from the over-bearing “risk off” sentiment in stock markets, which has hampered several technology stocks. To be clear, we don’t think it is down to a systemic issue within the company.
Its financial position remains solid despite the market sell-off. For the six months ended 31 December 2021, operating losses more than halved on the same period in the previous year, falling from £0.9 million to £0.4 million.
In addition, for the six months ended 31 December 2021, the company reported revenues of £3.3 million. This is an 8% increase on the same period in the previous year.
For now, Gfinity remains a HOLD. However, we are hopeful that its solid financial base and continued commercial success can reverse its current fortunes and deliver value to shareholders.
You can find the original recommendation here.
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.
AB Dynamics (LSE: ABDP) – AB Dynamics is a provider of automotive testing services. The automotive industry is undergoing rapid transformational change, heading for an electric and autonomous future. This brings an ever-changing regulatory landscape, with automotive manufacturers needing to ensure they adhere to the latest safety standards. AB Dynamics testing services are helping to make arduous, chaotic testing periods more seamless than ever before, ensuring that the vehicles of tomorrow are fit for our roads. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
