On July 18, 2014 Active Energy Group Plc (AEG) announced that it had entered into a landmark joint venture agreement to commercialize over 250,000 hectares (ha) of land in Canada, which contain at least 108,000 ha of mature timber as well as other natural resources. Since that date, the company’s stock has gone up by 75% to USD 0.076 per share, implying a market capitalization of just USD 42 million.
However, in our view AEG’s stock price is largely undervalued, considering that the company can net as much as USD 130 million in value over the next few years from its JV project by realizing long-term Tree Farming Permits to timber investment management companies (TIMOs). At the KAQUO Métis Settlements Economic Development Summit, held on 27 January 2015, KAQUO commented that it had received three non-binding, conditional offers, in aggregate amounting to USD 300 million subject to further due diligence, which demonstrates a high level of interest by investors in the asset. Moreover, with the Canadian project, the company has significantly changed its business and risk profile – expanding from its original business of wood chip manufacturing exclusively in Ukraine to timberland and natural resources development and management in Canada.
Thus, given the joint venture value and the considerable international growth opportunities in the company’s other market sectors (wood chip for MDF/OSB panel board manufacturing, wood chip for power generation, and biomass fuel technologies), we issue a BUY recommendation for the stock with a target price of USD 0.260 per share, implying 244% upside.