AEG: From Forest to Factory to Fuel [BUY]

Since our initiation report on Active Energy Group in March 2015, a lot has changed. The JV  with the Canadian Metis aboriginal settlements (in which AEG has a 45% stake) finally received the go-ahead from the authorities in Alberta, albeit with minor conditions, to proceed with the deal on commercialization of the mature timberlands, and AEG now expects to begin forestry operations in 1Q2016. The company’s core business in Ukraine experienced some turbulence, including the break-down of the old chipping machine in July 2015 and the short-term spike in prices of raw timber as a result of the ban on roundwood export from Ukraine and Bulgaria. Despite that, AEG reported that it was able to get back on track with its capacity expansion plan, installing a new wood chipping line in October 2015, although the commissioning of the softwood wood chipping line is now expected in 2016. And last but not least, the company recently announced a 51% owned JV with Biomass Energy Enhancements LLC (USA) to exclusively commercialize a new biomass fuel manufacturing process (“AEG CoalSwitch”), stating that the new technology process could produce fuel out of timber residues and waste with energy content similar to coal, while simultaneously being contaminant-free. This will allow power generating customers of AEG CoalSwitch to use the new fuel in coal-fired power stations without costly retrofitting, reconstruction or output losses. 


While we can’t assign any value to AEG CoalSwitch due to lack of any tangible data or concrete news from the company, we believe that it will provide a significant upside potential to AEG. Meanwhile, we reiterate that the majority of the value should come from the company’s JV in Canada. Thus, we issue a new target price of USD 0.234 (GBp 15.49) for AEG’s shares, or a 230% upside to the current price of USD 0.071 (GBp 4.70).


For more information please see the full report on AEG in PDF format.



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