Cindrigo Energy Limited. is a renewable energy company, built on long historic Swedish renewable energy expertise and experience in Waste to Energy (“WTE”) and Biomass Energy projects. Originated out of a long tradition of providing clients with high quality and good life-time value energy facilities, being in the forefront regarding performance, availability and emission levels.
Cindrigo is a relatively new established renewable energy company, supported by long historic Swedish renewable energy expertise and experience, as well as a strong international partner position. The Company’s technology is based on well-proven international standard, meeting all regulatory environmental regulations while limiting any technological risks. Cindrigo is in process of doing a listing on a regulated stock exchange in Canada. Based on an assumed expansion plan, a peer valuation and forecasted financials, this could yield a company valuation of USD 3,300 M using year 2024 as a benchmark.
Industry and market conditions
Waste is a large problem in all parts of the world, and landfilling is no longer viable. Waste-to-Energy is the only viable large-scale solution. Energy prices have increased and over a 10+ year period they are forecasted to increase further and alternatives to fossil fuels will likely become even more attractive. It could be argued that the country risk of Ukraine, where Cindrigo will build their initial WTE-plants, has decreased lately. Ukraine raised USD3 bn in 2017 in its first sovereign bond issue since restructuring their debt in 2015. In October 2018, IMF also approved additional funding of circa USD 3,500M after government accepted to reduce the large subsidy of gas price to households. Ukraine has also a strong political support from EU, USA etc. Overall it seams like with recent moves from international institutions like IMF, World Bank etc. could be a sign of investors having confidence in Ukraine’s reform programme.
Cindrigo has strong support and a valuable Cooperation with China Energy
The Government of Ukraine through the Ministry of Energy has agreed and guaranteed certain key conditions for the cities Kiev, Odessa and Bila Tserkva, with a desire for additional cities. For the initial projects in Ukraine, Cindrigo will operate in cooperation with China Energy a leading Fortune 500 company among the leaders in China’s power engineering and construction industry, who provides the full project financing required for the projects.
The business model
The business model for the projects is straightforward, with revenue generation beginning after approx. 30 months, to allow for the construction of the facilities. Cindrigo has already secured a long term PPA with the Government, which shall see all power, fuel and heat sold to the Government at pre-agreed inflation linked prices as well as a good working relations with the local municipalities. The Ukrainian Government will pay for electricity at a price set in euro, further lowering the Company’s currency risk. Each WTE plan is expected to generate annual operating cash flows over time above USD30 M, sufficient to support further expansion using internally generated funds.
Management and Board
During the project development process Cindrigo has had some ten dedicated persons whom have been engaged. In addition, the Company has also employed additional dedicated consultants in various key areas, including engineers and local partners in Ukraine, in order to secure know- how of the local markets and key contacts with governments, municipalities, authorities and sub- contractors. As a result, Cindrigo has and can combine competences in Biomass, and WTE technical and project development with local expertise. Several key persons in the Company have solid business experience ad a genuine project experience both in general and in the new energy segment.
By 2024, Cindrigo is expected to have ten WTE plants operational. At this point, adjusted for assumed minority partners and equity claims, EBITDA 2024 attributable to Cindrigo is forecasted to approx. USD220 M and increasing both organically, as well as from expanded operations with additional WTE plants. An EV/EBITDA-multiple of 13, applied to 2024 forecasted financials, yields a valuation of approx. USD3,300 M (adjusted for assumed net debt). Based on approx. 153 million shares that are assumed to be outstanding 2024, yields a share price of 25 USD.
Investment risk: Cindrigo is in different ways exposed to political, legal, tax, currency, inflation, convertibility and repatriation risks. Cindrigo, as business in general, is exposed to economic stagnation and general reduction in demand for goods and services. There is a risk that the Ukrainian Government could reduce their environmental “right doing”, which could result in a lower support and focus on the area that Cindrigo operates within.
Interim Update of Cindrigo Analysis
Cindrigo Energy Limited (“the Company” or “Cindrigo”) is a renewable energy company, built on long historic Swedish renewable energy expertise and experience in Waste to Energy (“WTE”) and Biomass Energy projects. Originated out of a long tradition of providing clients with high quality and good life-time value energy facilities while being in the forefront regarding performance, availability, and emission levels.
The Interim Company Update
This Update is made as an interim complement to the report published 2019-11-20. Analyst Group intend to publish a full updated equity research report in conjunction with when Cindrigo conducts their planed IPO. Some significant development impacting the Company is reflected on a high level in this interim update, as a complement to the previously published report. The assumed impact shall be viewed as an indicative high level “Top Down” adjustment reflecting primarily the impact on the Company from the
- Corona / Covid 19 Situation, and
- The Reverse Take Over (RTO) offer to the Company from Challenger Acquisitions LTD
This report shall be read as a complement in conjunction with the previously published Analysis
The Corona / Covid 19-Situation and its impact
Cindrigo Energy Ltd has been impacted with significant delays due to the situation with COVID-19. The Engineering Procurement and Construction contractors China Energy team have been (and still is) faced with quarantine and travel restrictions. Ukraine has also been closed down for travel to and from the country for a long time, therefore planned meetings and site visits and joint development activities have been postponed during this period. Cindrigo’s local team in Ukraine has continued its work with the contractual, construction and operational preparation, but of course with significant delays due to the lack of access to people and travel. Impact from this “Lock Down”-situation is a delay of approximately one and a half year for the first WTE project in Kiev. It will obviously also slow down the development on the following projects, at least in the earlier part of the planning period. We assume that the Company will be able to gradually catch up some of the lost momentum over time.
New Special Investment Law
There has been some positive development in Ukraine to support larger important projects like Cindrigo’s WTE-projects, which are meeting the needs both for household waste handling, reducing landfills, producing clean energy and creating jobs. On 21 July 2020, Ukraine’s parliament, the Verkhovna Rada of Ukraine, passed at the first reading a Draft Law No. 3760 “On State Support for Investment Projects with Significant Investments” (“Draft Law“). Second reading was done in November and it is expected that the final vote and decision by the Parliament will be in December/January. The Draft Law was proposed by the President of Ukraine as part of his investment promotion agenda and is aimed at enabling state support for major investments in Ukraine.
The Draft law will provide benefits in connection with Cindrigo’s WTE-projects, which will qualify for assistance. In particular, the provisions relating to access to state-owned land at favourable rates with an option to buy after 15 years, will provide savings to the project.
Among the most notable provisions, the Draft Law sets out:
- possible forms (instruments) of state support for investment projects, maximum for 15 years
- legal guarantees for participating investors
- tax benefits, such as exemption from corporate income tax or duties on import of new equipment
- granting preferential rights and special land use fees for using state and municipality-owned land plots for the implementation of an investment project
- providing related infrastructure facilities (roads, communication lines, heat, gas, water and electricity, utilities, etc.) necessary for the implementation of the investment project, including through the (re)construction of such facilities at the expense of the state or municipality The project implementation period should not exceed five years.
- the undertaking by the Government of Ukraine and the municipality (i) to guarantee stable conditions for the implementation of the investment project and (ii) to provide the state support in the form and on the terms set out in the Special investment contract
Cindrigo will benefit from this new law, why we have not reduced the roll out plan as much as we would without this new supportive plan and expect that the Company will try to get as many projects as possible covered whith this support.
We estimate that the Company will simplify the installation at least on the first plants and exclude the district heating and only produce electricity (impacting some 14-15% on Cash Flow). Also some impact on the increase of cost of production with the delays faced (assumed 2% on annual costs), benefiting approximately 10% from the tax exemption, and also on land lease etc.
In our high-level adjustment, we have assumed a delay for the first project of approx. 1.5-2 years, and there after reduced the “roll out plan”, and assumed a ”blended” impact on the Business Model, as below table.
REVERSE TAKE OVER
On 31 August 2020, Challenger Acquisitions LTD (LSE:CHAL) a Guernsey company listed on London Stock Exchange (LSE) made an offer for Cindrigo.
Challengers shares were admitted to the LSE standard segment of the Official List and to trading on the Main Market. As the transaction constitutes a Reverse Take Over under the Listing Rules the Company requested the FCA (Financial Conduct Authority) in UK to suspend the Company’s listing on the standard segment of the Official List. Trading on the Main Market of the London Stock Exchange has also been suspended pending the publication of a prospectus, to be approved by the FCA.
Challenger received acceptances of the Offer from Cindrigo shareholders representing 74% of the shares of Cindrigo. The companies are in process of finalizing the outstanding conditions, which are expected to be done shortly. Under the plan, Challenger will make an all-share offer on a one for one basis for the capital of Cindrigo. Challenger Acquisitions will then be renamed to Cindrigo Holdings LTD. Following the successful completion of the transaction, the new Cindrigo Holding will have a total of 151 million shares in issue, whereof Cindrigo shareholders will hold approximately 96,5%.
Following the acceptance of the offer, Challenger has appointed several Cindrigo directors to its board: Jörgen Andersson as Chairman, Lars Guldstrand as CEO, and Dag Andresen and Mustaq Patel as Directors.
HIGH LEVEL UPDATED VALUATION
Based on above key issues impacting Cindrigo we have made a high-level interim adjustment/update of the valuation, where the impact of COVID-19 is a major driving factor. As a result, we expect the Company to have a slower development in the earlier years but will be able to ramp up and within approximately 5 years almost be back on previously indicated levels.
Long Term we still see the potential for the Company to reach a 5-10 BUSD valuation given successful development in Ukraine, and new other jurisdictions, and potentially in other renewable energy sectors.
An updated equity research report is intended to be published in conjunction with and when Cindrigo is re assuming trading, expected to be in H1, 2021.