Join our community of smart investors

Intelligent Energy fuelled for growth

Shares in US fuel-cell companies have been delivering supercharged returns for investors and we're backing new London listing Intelligent Energy to similarly power ahead
Intelligent Energy fuelled for growth

Fuel cells are not just the future of power generation. They're the present. And shares in newly listed Intelligent Energy (IEH) offer investors a chance to buy into a company that looks set to become an industry leader.

IC TIP: Buy at 238p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Proven technology
  • Multiple paths to commercialisation
  • US fuel-cell shares soaring
  • Large cash pile
Bear points
  • Uncertain timeline
  • Difficult to value

After more than two decades of research and development, resulting in over 800 patents (granted or pending), Intelligent Energy is poised to simultaneously bring to market several innovative fuel-cell powered products. The same core technology is behind each one and has been vetted by some of the world's biggest corporations as being cheaper, smaller and more powerful than competing systems. Moreover, the potential size of each market is so large, says Mark Lawson-Statham, Intelligent's director of corporate finance, that "if we get it right with even one of them, [shareholders] win".

The company certainly got the timing of its flotation right. Coinciding with a boom in US fuel-cell shares, Intelligent Energy raised nearly £72m from several big-name investors when listing in July at 340p a share. Since then the share price has weakened considerably, dipping as low as 200p on very light volume, as some private shareholders took profits on holdings that were locked up for years. It hasn't helped that analyst research can't be published until later this month because of stock market regulations.

That makes it more difficult to value the loss-making Loughborough-based company, which burned through £25m in cash in its last fiscal year. But a recent trading update and detailed business plans in the prospectus offer enticing clues. And £99m of net cash should last for a few years even if sales growth is slower than expected.

Intelligent anticipates making money from its technology through a licensing model not dissimilar to British success story Arm (ARM). It will license out its fuel-cell system design to manufacturers on a non-exclusive basis and then collect a royalty for every device shipped, in addition to receiving a large upfront payment typically equivalent to roughly 10 per cent of the net present value of the expected royalty stream.

INTELLIGENT ENERGY (IEH)

ORD PRICE:283pMARKET VALUE:£532m
TOUCH:283-285p12-MONTH HIGH:340pLOW: 205p
FORWARD DIVIDEND YIELD:nilFORWARD PE RATIO:na
NET ASSET VALUE:34pNET CASH:£98.6m

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201111.9-16.5-nil
201243.9-0.9-nil
201320.8-29.8-nil
2014*---nil
% change----

Normal market size: 1,500

Matched bargain trading

Beta: 1.92

*No broker forecasts currently available

It penned the first such deal for a fuel-cell powered scooter in 2011 with Suzuki, which paid £45m upfront and is contracted to pay millions more under a joint development agreement while the bike makes it way to mass production in 2015 or 2016. Intelligent has a similar deal in place with a top-tier European car manufacturer and another premium Japanese automotive customer for fuel-cell powered cars; if the former exercises an option agreement before end-2017 it could trigger "a significant one-off" payment that we're told could be as much as the company’s current market capitalisation.

At Intelligent's consumer electronics division, the company expects its manufacturing partners to produce more than 50,000 units of its Upp portable mobile phone chargers before the end of this calendar year. Intelligent initially expects to receive around 55 to 60 per cent of the retail price per unit sold, with a starter pack costing roughly £150 and replacement fuel-cell cartridges priced around £10 each (each cartridge typically delivers up to one week of energy for smartphones). Whether there will be strong demand for the product in areas with irregular power supply remains to be seen.

Lastly, the group expects to have bought the rights to supply power to roughly 5,000 telecommunications towers in India by the end of this month, and 130,000 within five years. Intelligent will slowly replace the diesel-powered generators on-site with fuel-cell power systems, and in the meantime plans to boost margins with specialised remote monitoring equipment.