Can Eqtec’s recent rally continue or will waste-to-energy firm flounder?
Waste-to-energy firm Eqtec (LSE:EQT) has soared by nearly 120pc to 0.7p over the past week after announcing progress in its cancellation of a debt facility that has battered it since February. But with shares still sitting far below recent highs of 8.7p, hit in February 2017, can Eqtec’s rally continue or will the business be hampered by ongoing cash concerns and questions around its ability to deliver?
Eqtec soared last Friday after telling investors it was making a partial redemption of an unsecured convertible loan note facility worth up to £7.5m that it signed with an investor in February. It said the remainder of outstanding loan notes would redeem once final negotiations complete with a new debt provider, essentially freeing it from the facility’s obligations.
Investors had been waiting for the news ever since the facility was cancelled in March when the market took issue with its terms. These concerns led to a massive drop in Eqtec’s share price and raised severe question marks over future funding.
However, Eqtec said last week that it is now in negotiations over a straight debt-only facility that is expected to be drawn down in two tranches and has been structured as straight debt to minimise shareholder dilution. It also said it is in discussions with its major shareholder EBIOSS Energy regarding further investment to execute the expansion of its business plan. Finally, it added that the provider of the cancelled facility has agreed to give up any future or past equity rights in EQTEC in the form of warrants that were attached to the facility.
Last week’s news will have come as a relief to those who have stuck with Eqtec so far this year, with shares seemingly being hit harder every time an update is released. Aside from disagreeing with the terms of the facility itself, investors were also worried that the cancellation would have an impact on Eqtec’s ability to carry out its growth strategy. Without any funding in place, it would be difficult for the company to use its pipeline of UK projects to take advantage of Britain’s lack of domestic incineration and gasification capacity, as outlined earlier this year. Indeed, things looked pretty bleak in March when Eqtec said it was ‘actively exploring opportunities for further funding to replace the funds that would have been available from the Loan Note facility’.
With a new facility and investment from EBIOSS possibly on the cards, Eqtec’s growth plans are starting to look like more of a reality; as such, it will be interesting to see where shares go from here. Although the business has rallied, it remains substantially below previous highs. It is always hard to predict how high a stock like this will rise but given that many were surprised by the severity of Eqtec’s decline, the firm could easily exceed expectations on the upside. If this is the case, then its current 0.7p share price could be a decent buying opportunity.
Of course, it remains too early to say with full confidence that Eqtec will be able to stage a full recovery. For example, some investors are unlikely to be impressed by the fact that its long-standing board remains in place. Senior management has repeatedly faced criticism for failing to deliver and using rebrands to mask mistakes. Before making their move, many will want to see the company’s management demonstrate its ability to provide strong newsflow at a decent pace. Likewise, given that we do not know any details about its new debt facility, Eqtec could soon end up having to raise money in the equity market to stage its expansion campaign across its three near-term projects in the UK.
Regardless of what you think about Eqtec’s near-term prospects and management strategy, the firm’s fundamental business model looks strong. The company sources and assists in developing waste elimination projects with the ultimate aim of selling them its EQTEC Gasifier Technology (EGT). EGT enables project developers to construct waste elimination plants and recover electrical and thermal energy from the waste streams. If Eqtec can carry out its expansion and go on to use its numerous global strategic alliances to spearhead the UK’s transition into a significant waste-to-energy player then who knows where shares could end up?