Analyst says Pilot worth 5x its current market value

One analyst sees plenty of upside potential in emerging ASX-listed renewables, hydrogen and carbon capture developer Pilot Energy, predicting as much as a fivefold increase in valuation if the company is successful.

Research as a Service (RaaS) analyst Andrew Williams has placed a valuation of $130m, or 26c per share, on Pilot Energy (ASX:PGY). That’s a 400% gain on the current $26m market cap and 5.2c share price.

Pilot Energy (ASX:PGY) share price chart

Pilot has made substantial progress on advancing the feasibility studies for its solar, wind, hydrogen and carbon capture and storage (CCS) projects in Mid-West and South-West WA, which Williams says may enter a demonstration phase from the end of 2022.

“Pilot is pursuing an integrated wind and solar power generation opportunity with hydrogen manufacture by leveraging its oil production infrastructure and tenements, with multiple commercial outcomes,” he said.

While the feasibility studies on the Mid-West Renewable Energy, Hydrogen and Carbon Capture Project are not yet complete, they have highlighted early on the highly competitive position that these projects can potentially provide Pilot.

“Although the renewables plays are early stage, the value proposition is beginning to materialise and initial feasibility results confirm the commercial opportunity,” Williams noted.

“There is a portfolio of potential, likely worth more than the sum of the parts especially leveraging its acreage and infrastructure assets. The remainder of 2022, in particular, could deliver material re-rating outcomes in the success case.”

Williams said financing for the renewables and other downstream opportunities could be provided partly through partnering, which may be deliverable around the end of 2022.

Pilot has already formed an initial feasibility consortium with infrastructure heavyweight APA Group (ASX:APA) and Warrego Energy (ASX:WGO) for the Mid-West Blue Hydrogen and Carbon Capture Project.

The company has also received significant interest from other parties keen to partner in both the stand-alone wind and solar renewable energy projects and the clean hydrogen and carbon capture projects.

Williams said the move to demonstration operations should provide a tangible net asset value (NAV)-based valuation platform. NAV is the value of a company’s assets minus the value of its liabilities.

“It’s worth highlighting that a successful, integrated renewables development could deliver an equity value of >$2.3bn across the life cycle, on a 1.5GW project with associated hydrogen manufacture on the basis of our assumptions and reference valuation methodology,” he said.

Hydrogen market coming sooner than expected

According to ANZ, the hydrogen market is heading towards commercial reality a lot faster than previously expected.

In its just released “Hydrogen Handbook”, the institutional banking giant says the global push to reduce carbon emissions to net-zero by 2050 is intensifying, with every sector of the economy increasing targets and focus.

“With its distinctive properties as an energy carrier, we believe hydrogen will be key to de-carbonisation across broad sectors of the economy, particularly transportation, heavy industry and manufacturing,” ANZ said.

And Australia is “well positioned to play a pivotal role in developing a hydrogen export market to key customers in Asia” given its abundant wind and solar energy resources, according to ANZ.

Western Australia in particular has some of the highest average wind speeds – around 9-10m/s, which is comparable to the North Sea, according to a report by the Blue Economy CRC.

Australian waters have a technically accessible offshore wind resource of 2,233GW.

Meanwhile, RaaS’ Williams says the market is now pricing renewables options and the risk for Pilot is “slowly unwinding”.

“Early indications from the studies confirm the technical potential of the renewable power generation and CCS, whilst work continues on the hydrogen-generation opportunities,” he said.

“The carbon-capture market is significantly greater than initially considered.

“We see potential for a material de-risking across the portfolio on the delivery of positive conclusions to studies by the end of CY22. Success cases should also provide the platform for financing and partnering.”

This article was developed in collaboration with Pilot Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.