Edison Investment Research Limited
London, UK, 15 September 2022
Loop Energy (LPEN): Initiation — Commercial orders underway
Loop Energy’s patented PEM fuel cell technology has a leading combination of fuel efficiency, power density and durability, resulting in an attractive total cost of ownership, providing the company with a competitive advantage. This is supported by a recent transformational commercial order with electric truck maker Tevva, won via a competitive tender process. Loop Energy is targeting disruptors and early movers in electrification of the return-to-base fleet segment of road transport, which should help it to ramp up sales and drive down costs relatively quickly. We consider only the truck and bus markets, which are a portion of the company’s total addressable market, and estimate a US$4bn market in 2030 and a c US$60bn market by 2050. Our DCF valuation for Loop Energy implies C$4.5/share at a 15% cost of capital, which is more than double the current share price. This increases sharply as the investment case de-risks.
Our DCF, which covers the period 2022–50, followed by a terminal value with a 3% terminal growth rate, suggests a valuation of C$4.5/share, at a 15% cost of capital. This is more than double the current share price (C$2.12). Our valuation is highly subjective, due to the early stage of the company, absence of track record and nascent nature of the fuel cell market, thus we provide a detailed risks and sensitivities analysis in this report.
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