Invinity Energy Systems: VSA Capital
Transformative Strategic Investment
Funding to put Mistral, not just into operation but high sales mode
Invinity Energy Systems (IES LN) develops Vanadium Flow Batteries (VFBs) for utility-scale grid storage. The Group’s next-generation Mistral VFB technology, jointly developed with Gamesa Electric, launches in H2 2024 to provide grid-scale longer-duration energy storage (LDES) as renewable generation increases globally. To capture this opportunity, the Group has today announced that it has raised £56.0m through a placing at 23p per share. It is now undertaking an Open Offer to raise up to £6.6m at the Issue Price. The equity raised will see the investor base transformed as, following extensive due diligence, the Group has secured strategic investment from the UK Infrastructure Bank (UKIB) and Korea Investment Partners, Korea, but also with support from existing Institutional investors. Mistral is backed by 81 granted or pending patents and more than 6GWh of commercial interest building upon an existing base of 75MWh deployed or contracted for delivery across 82 projects and 15 countries.
A strengthened balance sheet, credibility from strategic investment and working capital available for growth sees this funding round putting Mistral, which is nearing completion, not only into operation but into high sales mode.
Licence and Royalty Model for International Growth and Scale
The Group is pursuing a capital-light model for markets outside the UK and U.S. as exemplified by the relationship with Taiwanese industrial company Everdura which already has a 14.4MWh order with IES. Everdura is to undertake the manufacture of Mistral VFBs under licence, purchasing cell stacks directly from IES, assembling the battery systems at their facilities and paying a royalty to IES on its end sales. Everdura will fulfil the orders it intends to secure under the terms of the existing reseller agreement with IES which targets 255MWh. We see the licensing and royalty model supporting the Group’s capital-light model to drive wider outside the UK and U.S.
UK Market Growth: Infrastructure Bank Project Led Investment
The UK aims to reduce emissions to decarbonise the grid by 2035. It also seeks to reduce costly fossil fuel imports and increase energy security. It views longer-duration energy storage as critical to achieving this goal as fast as possible at minimum cost to energy consumers. Existing UK Battery Energy Storage Systems (BESS), dominated by imported lithium-ion technology, averages 1.3 hours duration. IES VFB’s operate in the 4hours+ range. The UKIB is undertaking an investment of £25.0m to support IES minority investment into customer led LDES projects using IES batteries. The opportunity is large with a significant number of appropriate projects identified by Invinity across its UK commercial interest pipeline.
Recommendation and Target Price
Our updated our forecasts reflect the new funding, however, the licensing and royalty model and UK investment projects are not explicitly modelled and provide upside potential.
Our DCF valuation of £511m sets our 12-month target price of 110p/sh. Buy
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