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FUNDED TO CASH GENERATION AND MORE Invinity’s major equity fundraising is targeting a minimum of £50m with half already committed by the UK Infrastructure Bank (UKIB). A second strategic investment of £3m has been committed by Korean Investment Partners. The raise will see Invinity to net cash generation, with £30m of the raise supporting the company’s scale up ahead of this year’s launch of the next generation Mistral flow battery. The raise will boost the balance sheet, reducing counterparty risk and unlocking sales and bigger deals, critical to maximising the potential Mistral.
Investment in UK Projects to Unlock Further Opportunities The funding will also allow Invinity to take minority stakes in long duration storage projects in the UK with at least £18m allocated. This will increase equipment sales, add project returns and help establish the company as a leader in the UK market. As investments in physical assets this value remains on the balance sheet and, along with the endorsement of two new strategic investors, supports the company as a counterparty. Invinity is targeting 96MWh of projects which would deliver c.£43m in sales. As one of the most rapidly decarbonising electricity systems globally the need for long duration storage in the UK is growing and we see leadership here as resonating in other markets. More intermittent wind generation will see storage duration and cycles lengthening which plays to Invinity’s competitive advantages against lithium-ion batteries. Additional support for long duration storage is now likely with the government consulting on price support. A potential move to zonal pricing could create more local price volatility benefiting long duration storage.
Strategic Investment Follow Major Due Diligence The funding will also support accelerated manufacturing scale-up of Mistral which completed performance testing in February. This will include a £2m investment to increase manufacturing facilities in Scotland and further expansion of manufacturing and supply chain in North America. The support of UKIB shows how helpful a policy bank can be to clean energy financing and its ability to develop Invinity as a national energy storage champion with global reach clearly demonstrates the additionality it seeks. Invinity will move its domicile from Jersey back to the UK further cementing its position as a UK company. This is UKIB’s first investment in a public company and this investment comes off the back of more than 6 months of detailed third-party due diligence. It is a public market investment with private equity diligence and as such we think the information content of the investment adds significantly to its monetary value.
FORECAST CHANGES Comfort in current trading Invinity has given a current trading update and for FY 23 remains on track to recognise at least £21.6m of revenue in 2023 and we remain comfortable with our £22.4m forecast. FY 24 is likely to be significantly second half weig
Timings. The pipeline increased 17% since last reported in November 2023 giving comfort in our underlying medium term forecasts assumptions. New strategy changes margin potential We also note the development of strategy facilitated by the fund raising. In addition to the investment drive in the UK, the company will continue to focus on both the UK and North America as its core markets with a manufacturing of the cell stacks in Bathgate, Scotland and Vancouver, Canada. Other manufacturing capability has already been expanded to partner and existing strategic investor Baojia. Outside these core markets Invinity is moving to a manufacturing strategy based on a licence and royalty model. This will reduce the need for capital deployment while allowing better margin through royalty payments. We have modelled a growing proportion of non-core market royalty sales starting gradually from FY 25 and increasing to 50% of all business by FY 28. This initially grows the effective gross margin from 22% to 28% in FY 26 but by FY 28 we think the underlying gross margin of 25% would be improved to 38%. Forecasts adjusted for new model We have adjusted our forecasts for the equity raise and resultant dilution. We have also adjusted for the new strategy with an assumption that new sales from FY 25 onwards will be increasingly split between core and non-core markets and non-core will receive royalty revenue but will avoid the manufacturing capex required to deliver this. However, we have also increased opex to reflect additional spend on marketing and the expansion at Bathgate. We have additionally added an investment income stream to reflect the minority investment in UK projects. Dilution significantly offset by other gains As a result, our headline revenue forecasts from FY 25 drop as half of revenue is replaced by royalties, but operating profit rises to reflect a better overall margin. Additional investment income starts to appear in FY 26 and there is additional investment in the UK projects from FY 25 together with the £2m manufacturing spend in Scotland. The fund raise adds cash but also shares which rise to c400m shares. While this represents considerable dilution it is significantly offset by better operating profit, investment income and lower capex. As a result, our central case valuation falls to 86p from 134p and still represents considerable upside on the current share price.