AUS-RFX-160607-Consumer offering to open the door

Transcription

Industrial Machinery│Australia│Equity research│June 7, 2016
Redflow
Consumer offering to open the door
HOLD (previously ADD)
Current price:
Target price:
Previous target:
Up/downside:
Reuters:
Bloomberg:
Market cap:
A$0.58
A$0.60
A$0.39
3.9%
RFX.AX
RFX AU
US$166.7m
A$226.3m
US$0.50m
A$0.67m
393.5m
76.9%
Average daily turnover:
Current shares o/s
Free float:
Price Close
Relative to S&P/ASX 200 (RHS)
311
0.630
269
0.530
228
0.430
186
0.330
144
0.230
103
0.130
5
4
3
2
1
61
Vol m
0.730
■
We reinstate coverage of RFX following its recent capital raising. We expect RFX
to end FY16 with ~A$12.5m of net cash and sales ramping up.
■
After many years of trials RFX recently received its first small commercial orders
from a variety of system integrators. We expect sales to accelerate as commercial
orders generate revenue and cash.
■
RFX now fully outsources contract manufacturing to global giant Flextronics, has a
Battery Management System for ease of installation and use, and is generating
small commercial sales, which places RFX one step closer to success, in our view.
■
That said, after a stellar share price performance, RFX is now trading in-line with
our price target so we move to a Hold recommendation.
Key obstacles have been overcome and sales have started
After prolonged testing System Integrator partners have placed small commercial orders
for telecommunications and commercial applications and further orders are expected.
RFX recognised that slow sales were a result of pain points in integrating the ZincBromine Battery Module (ZBM) so a Battery Management System was built to ease
integration and remove a major barrier to sales. Ease of system integration, improved
quality control and the ability to manufacture in volume through global contract
manufacturer Flextronics, means sales are expected to increase meaningfully from here.
Substantial work on the ZCell (RFX’s residential battery) including residential inverters,
enclosures and sales channels has been undertaken. Installations are now expected in
Q1FY17. This should stimulate residential sales in the near term, and as customers gain
comfort with the ZBM, should result in increased commercial adoption.
Where to from here
Jun-15
Sep-15
Dec-15
Mar-16
Source: Bloomberg
Price performance
Absolute (%)
Relative (%)
1M
53.3
51.8
Nick Harris
T +61 7 3334 4557
E nick.harris@morgans.com.au
3M
79.7
75.3
12M
134.7
137
Having raised A$12.9m through a placement and entitlement offer, RFX will use ~50%
of the funds for working capital, 28% for the residential product, 12% to outsource
manufacturing of the large batteries and 8% for ongoing product improvement. With
funding under control and RFX generating small commercial orders, the focus now
moves to growing commercial sales. History has proven that customers are slow to gain
comfort with new technologies but a number of leading integrators have finally crossed
the chasm and the residential ZCell should also help early adopters gain comfort that the
ZBM is a high quality product with a strong commercial case, in many applications.
Investment view – recommendation back to a Hold, for now
We now forecast RFX to achieve an EBITDA profit in FY18. Our DCF-based valuation
and price target have increased from A$0.39 to A$0.60 on higher medium-term sales
expectations. However, the fact that RFX shares have nearly tripled since the start of
this calendar year, and now trade in-line with our valuation, results in us downgrading
our recommendation from an Add to a Hold. The reward for success remains significant
and closer to achievement, in our view. Over the medium term we see upside potential
for RFX shares and achieving this comes down to execution. For now we await
conversion to larger sales, before getting more excited about the upside potential (of
which we see plenty).
Financial Sum m ary
Rev enue (A$m)
Operating EBITDA (A$m)
Net Prof it (A$m)
Normalised EPS (A$)
Normalised EPS Growth
FD Normalised P/E (x)
DPS (A$)
Div idend Y ield
EV/EBITDA (x)
P/FCFE (x)
Net Gearing
P/BV (x)
ROE
Normalised EPS/consensus EPS (x)
Jun-14A
5.34
-3.15
-3.60
(0.017)
(55%)
NA
0%
NA
NA
(99%)
11.20
(42%)
Jun-15A
2.04
-12.04
-12.44
(0.049)
190%
NA
0%
NA
NA
(90%)
11.50
(99%)
Jun-16F
3.27
-14.13
-14.56
(0.040)
(19%)
NA
0%
NA
NA
(94%)
15.83
(105%)
1.98
Jun-17F
13.05
-9.72
-9.99
(0.025)
(36%)
NA
0%
NA
NA
(23%)
55.22
(115%)
Jun-18F
53.65
1.06
0.26
0.001
871.0
0%
223.3
145.6
101%
40.40
5%
SOURCE: MORGANS, COMPANY REPORTS
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS
CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
Powered by EFA
Figure 1: RFX financial summary
Profit and loss
Jun-14A
Total revenue ( inc R &D t a x c re dit s )
Jun-15A
Jun-16E
Jun-17E
Jun-18E
Valuation details
ZBM sales
5.3
0.2
2.0
0.1
3.3
1.1
13.1
11.3
53.6
51.8
Share Price
Price Target
Gross profit
0.0
-1.4
-2.1
3.1
14.3
Capital upside
Total shareholder return
Operating Costs
EBITDA
Depreciation
Amortisation & impairments
EBIT
Net Interest Income
Pre-tax Profit
Tax
Reported Profit
Exceptional items
Underlying Profit
9.2
10.6
12.0
12.8
13.2
-3.1
-12.0
-14.1
-9.7
1.1
-0.3
-0.4
-0.4
-0.4
-0.7
-0.2
-0.1
-0.1
0.0
0.0
-3.7
-12.6
-14.6
-10.1
0.4
0.1
0.1
0.0
0.1
-0.1
-3.4
-12.3
-14.5
-10.0
0.3
DCF
0.0
0.0
0.0
0.0
0.0
Weight valuation
-3.6
-12.4
-14.6
-10.0
0.3
Premium / discount (%)
0.0
0.0
0.0
0.0
0.0
Price Target
-3.4
-12.3
-14.5
-10.0
0.3
11
96
949
4,373
1
8
79
364
Implied ZBM sales (pa) at A$12k per unit
Implied ZBM sales (monthly) at A$12k per unit
Cash flow statement
EBITDA
Net interest
Tax
Changes in working capital
Operating cash flow
Capex
Free Cash Flow
Other Investing cash flow
Investing cash flows
Increase / decrease in Equity
Increase / decrease in Debt
Other financing cash flows
Financing cash flows
Jun-14A
Jun-15A
Jun-16E
Jun-17E
Jun-18E
-3.1
-12.0
-14.1
-9.7
1.1
0.0
0.0
0.0
0.0
-0.1
0.0
0.0
0.0
0.0
0.0
-3.4
-1.3
2.4
-1.3
-6.6
-6.5
-13.3
-11.7
-11.1
-5.6
Recommendation
Market Cap A$228.0m
3.9%
3.9%
HOLD
WACC
Key metrics/ multiples
P/E
PEG
EV/EBITDA
Valuation
15.0%
$0.60
$0.60
0%
$0.60
Jun-15A Jun-16E
Jun-17E Jun-18E
-11.6
-14.5
-22.8
871.0
-0.1
-0.7
-0.6
8.5
-12.7
-14.0
-23.4
223.3
Price/ Book Value
11.5
15.8
55.2
Price/ Net Tangible Assets
11.8
16.5
67.8
49.3
Operating cash flow yield
-5.8%
-5.2%
-4.9%
-2.5%
Free cash flow yield
-6.2%
-5.3%
-5.0%
-2.8%
40.4
-0.1
-0.8
-0.4
-0.4
-0.8
Per share data
-6.7
-14.1
-12.1
-11.5
-6.4
Diluted shares on issue
289.3
366.2
396.5
400.5
-0.2
0.0
0.0
0.0
0.0
Earnings per share (A$)
-0.05
-0.04
-0.03
0.00
-0.3
-0.8
-0.4
-0.4
-0.8
Normalised EPS (A$)
-0.05
-0.04
-0.03
0.00
7.9
15.4
11.7
0.0
0.0
Dividends per share (A$)
0.00
0.00
0.00
0.00
0.0
0.0
0.0
0.0
8.0
Payout ratio
0.0%
0.0%
0.0%
0.0%
0.0
0.0
0.0
0.0
0.0
7.9
15.4
11.7
0.0
8.0
Gearing
Net Debt
Balance Sheet
Cash And Deposits
Debtors
Inventory
Other current assets
Total Current Assets
Fixed Assets
Intangibles
Other non-current assets
Total Non-Current Assets
TOTAL ASSETS
Short Term Debt
Creditors
Other current liabilities
Total Current Liabilities
Long Term Debt
Other Non current liabilities
Total Non -Current liabilities
TOTAL LIABILITIES
Issued capital
Retained earnings
Other reserves and FX
TOTAL EQUITY
$0.58
$0.60
Jun-14A
Jun-15A
Jun-16E
Jun-17E
Jun-18E
Net Debt / Equity
10.3
13.1
12.5
1.0
2.2
EBIT interest cover
0.1
0.1
0.1
0.7
2.3
Invested Capital
0.5
3.3
1.3
4.4
14.0
Enterprise Value
Jun-15A
Jun-15A
Jun-16E
Jun-17E
Jun-16E
Jun-17E
Jun-18E
Jun-18E
-13.1
-12.5
-1.0
5.8
-90.3%
-94.0%
-23.2%
101.2%
n.m.
n.m.
n.m.
n.m.
0.1
3.2
1.8
4.9
153.3
198.1
227.0
236.1
0.2
0.3
0.3
0.3
0.3
11.0
16.9
14.1
6.4
18.8
0.9
1.2
1.6
2.4
3.8
Revenue
-61.8%
60.3%
298.5%
0.3
0.4
0.5
0.8
1.0
Operating costs
15.2%
13.3%
6.6%
2.9%
0.0
0.0
0.0
0.0
0.0
EBITDA
-282.7%
-17.3%
31.2%
110.9%
Growth ratios
Jun-15A
Jun-16E
Jun-17E
Jun-18E
311.1%
1.2
1.6
2.1
3.1
4.8
EBIT
240.9%
16.0%
-30.5%
-104.0%
12.2
18.5
16.2
9.5
23.7
NPAT
261.4%
-17.9%
31.1%
102.6%
0.0
0.0
0.0
0.0
0.8
EPS growth
177.4%
19.5%
36.6%
102.6%
1.1
2.3
1.8
4.3
8.9
Operating cash flow
-103.7%
11.9%
5.5%
49.3%
0.6
0.8
0.7
0.7
0.7
1.7
3.2
2.5
5.0
10.4
0.0
0.0
0.0
0.0
7.2
Gross profit margin
0.1
0.9
0.4
0.4
0.4
0.1
0.9
0.4
0.4
1.8
4.0
2.9
0.0
0.0
-42.5
Margin analysis
Jun-15A
Jun-16E
Jun-17E
Jun-18E
-69.4%
-63.8%
23.8%
26.6%
EBITDA margin
-589.5%
-431.5%
-74.5%
2.0%
7.6
EBIT margin
-615.4%
-445.1%
-77.6%
0.8%
5.4
18.0
NPAT margin
-602.6%
-443.2%
-76.6%
0.5%
0.0
0.0
0.0
ROE
n.m.
n.m.
n.m.
n.m.
-54.8
-68.5
-77.6
-76.1
ROIC
n.m.
n.m.
n.m.
n.m.
52.9
69.3
81.8
81.8
81.8
-0.1%
0.0%
0.0%
0.0%
10.4
14.5
13.3
4.1
5.7
Tax rate
SOURCE: MORGANS RESEARCH, COMPANY
2
Key focus has been on improving ease of use
Over the last 6-12 months the RFX team, Chaired by Simon Hackett, has
focused on a number of issues considered to be customer pain points or
obstacles to sales. Manufacturing is now fully outsourced to Flextronics
including supply chain management of components (i.e. procurement and
quality assurance of most components). In parallel with manufacturing
improvements, the ease of integration improved through the introduction of the
Battery Management System (BMS). The advanced BMS is a key development
as this cost effectively optimises the battery usage and provides flexibility to all
customers in how they use the energy in their system. The BMS will be
deployed in all batteries from large commercial installations to individual
residential systems.
RFX found that despite having a quality product with favourable economics,
this alone wasn’t sufficient to generate healthy sales. In mid CY15 it was
recognised that one of the critical obstacles delaying sales was difficulty of
integration. RFX had (and still has) chosen to partner with System Integrators
which has expertise in installing batteries; however, it became apparent that
the technicalities of integrating a Zinc Bromine Flow Battery are different to the
technicalities of integrating lithium and/or lead acid batteries. For example, the
ZBM can be 100% discharged at which point most inverters disconnect
whereas competing products are typically limited to around 70% depth of
discharge due to the composition of their chemistry. This difference alone has
ultimately meant it has taken longer for system integrators to integrate the RFX
battery into their systems and take the product to market. System integrators
are there now but it has taken some time. For a live example of a telco tower
powered by RFX’s ZBM, see Figure 12 on page 11.
With this in mind, Executive Chairman Simon Hackett resolved to improve the
ease of integration via a Battery Management System (BMS). The BMS is
predominately a software control system which allows for:

Ease of commissioning (configuring the ZBM for the appropriate usage
case and allowing for a much simpler physical cabling connection to the
household).

Connecting the ZBM (via WiFi or Ethernet) to the internet allowing remote
connectivity to the ZBM for:
- users to remotely manage and monitor their consumption;
- management and diagnostics (tweaking, outputting appropriate
data and/or remote problem resolution);
- remote data logging; and
- infield software updates.

Optimisation of the ZBM maintenance cycle, which now has reduced
impact on battery operations or availability.
In addition to the BMS, RFX focused on the development of an aesthetically
appealing outdoor enclosure for the residential market (and commercial market
if required). This enclosure (pictured in Figure 2 on page 4) addresses all the
feedback received to ensuring a safe operating installation. Combined with the
natural fire retardant nature of the electrolyte, there is a significantly higher
likelihood of a safe and easy installation compared to other technologies.
3
Figure 2: The refined focus for both ease of integration and residential applications
SOURCE: COMPANY DATA
With the BMS operational, RFX moved onto tackling issues relating to the
residential application (ZCell). The key obstacles here included:

Access to approved inverters. RFX now has access to appropriate
Australian approved inverters (to connect the battery to the household) and
is in the progress of finalising two others; and

Establishing a channel to market. We understand RFX has engaged with
retail solar installers in Australia with a view to having a number of
installers available (per region) to whom RFX can direct any retail requests
for ZCells.
Recap of the main investment thematic
The use of batteries to store energy is potentially one of the most
transformational industrial advances of our generation. The ability to store
power in a cost effective manner will dramatically change the way the world
works as it overcomes the key stumbling point, which is the intermittent nature
of renewables. RFX is at the forefront of this storage trend and is, in many
cases, already offering a cost effective solution relative to the current
alternatives.
We are not alone in this thinking. AGL Energy CEO, Mr Andy Vesey, recently
commented that “AGL was expecting a 60% reduction in the cost of batteries
over the next five years, while performance would improve as investment
poured into the chemistry and material science underpinning the technology”.
He also noted that advances in battery storage will “change the world” of
energy investment over the next few years (Source: AFR 25/05/2016).
Figure 4 (on page 6) shows that, on our estimates, RFX has reduced the cost
per kilowatt hour of its naked battery by 62% in the last two years (from A$0.95
per kw hour in the ZBM 1 to A$0.38 in the ZBM 3).
The key, in our view, remains that RFX’s position on the cost curve remains
relatively high (i.e. it is at the start of the cost reduction cycle and has a long
way yet to go). Despite being at the start of the cost curve, RFX’s product is
already cheaper (on warranted kilowatt hours fully installed) than competing
technologies like the lithium ion-based Tesla Powerwall.
4
We calculate that the installed cost per warranted kilowatt hour for Tesla’s
Powerwall is A$0.72 and the installed cost per warranted kilowatt hour for
Redflow’s ZCell ranges from A$0.55 to A$0.65. This means, in our view, that
for regular uses RFX’s ZCell offers better value. The Powerwall costs less in
terms of upfront dollars (capex), but looking at the fine print, it has less
warranted throughput than a ZCell. The Powerwall warranted throughput is
almost half of Redflow’s so the cost per kilowatt hour warranted and installed
for a Powerwall is actually 27% higher than for a ZCell. See Figures 6 and 7 on
page 8 for details.
As Figure 3 illustrates, Li-ion has been around for some time. It was originally
mass produced in laptop batteries and has started to fall down the cost curve.
Tesla’s Gigafactory (making batteries for cars and households) has propelled
lithium ion into investors’ minds but the rare earths constrain cost reductions
(as shown by recent price increases in lithium). The lithium carbonate price has
risen from US$5,500/t in 2014 to the current US$10,000/t. ASX listed producer
Orocobre (ASX:ORE) recently predicted that strong demand will maintain this
stronger pricing over the next three to five years - as battery production
continues to rise, with a longer term projected price of US$8,500.
The benefits of volume growth,
contract
manufacturing
and
technological improvements (i.e.
greater efficiency) have driven a
large decline in solar prices per kw
hour. The focus has moved for
some onto batteries. While Li-ion
costs have room to move, the
technology has been around for a
long time so, in our view, has less
scope for cost reductions than flow
batteries. For RFX the cost
reductions have only just begun.
Figure 3: The historical cost curve of solar and Li-ion
SOURCE: CLIMATE COUNCIL - BATTERY STORAGE FOR RENEWABLE ENERGY AND ELECTRIC CARS
As Figure 4 on page 6 shows, RFX has improved cost significantly but it has
only just started mass manufacturing and by virtue of containing no expensive
rare earths (unlike Li-ion) has more room to slide down the cost curve. We
expect this to happen for RFX through a combination of lower input costs due
to contract manufacturing (buying and building in volume) and a longer useful
life, which increases throughput and therefore lowers the cost per kilowatt hour.
Figure 4 shows that, on our estimates, RFX has reduced the cost per kilowatt
hour by 62% in the last two years - from A$0.95 per kw hour in the ZBM 1 to
A$0.38 in the ZBM 3 (this is the uninstalled or naked battery cost). It’s
important to note that this large price reduction happened before RFX
outsourced to a contract manufacturer so we expect there is more room to
move on this price over coming years.
We also note that all RFX’s product pricing is USD denominated (apart from
the ZCell for the Australian residential market). This provides a natural hedge
to manufacturing costs, which are also USD denominated.
5
Figure 4: RFX’s ZBM cost per kilowatt hour trajectory, so far. Without the benefits of
full scale contract manufacturing or volume growth
AU$1.20
AU$1.00
AU$0.80
AU$0.60
AU$0.40
AU$0.20
AU$0.00
ZBM1 (Feb 2014)
ZBM2 (April 2015)
ZBM3 (April 2015)
ZBM 3 - now
SOURCES: MORGANS, COMPANY REPORTS
While the cost trajectory is heading in the right direction, the economics of
household storage (versus buying off-grid in a metro area) are, unfortunately,
not yet financially viable for either Redflow’s ZCell or Tesla’s Powerwall.
However, there are early adopters and first movers who have expressed
interest in the ZCell and for whom the economics are not the primary motivator.
We explore this in more detail in the latter part of this research report.
Furthermore, don’t forget that the economics are positive in a number of other
applications – hence the commencement of small commercial sales (in
telecommunications and commercial applications). We also expect RFX’s and
other household storage economics to improve over time but note that, on our
estimates, over half the fully installed costs of a ZCell are outside of RFX’s
control (i.e. include inverters and labour related to installation).
However, there are a number of economically viable
solutions that can drive sales…
Many non-metro and off-grid applications are currently powered via diesel
generators for rural and remote locations (such as farm water pumping stations)
and diesel generators in conjunction with traditional lead acid batteries (for offgrid telco applications). For off-grid telco applications the cost is often related
not only to the per kilowatt hour economics but regular battery replacements
due to theft and/or product failure due to high temperatures and/or high saline
environments. In both instances the cost per kilowatt hour of the current legacy
solutions is typically in excess of US$1.00.
The RFX’s ZBM 2.0 sells for a recommended retail price of US$8,000
(US$0.27 per kilowatt hour) but has additional costs to make it a fully
operational commercial solution. RFX’s residential solution (the ZCell) is not
designed as a business focused product but we can use it as a reference point
since we have a fully installed price per kilowatt hour of around US$0.43
(A$18,500 / 30,000 kilowatt hours = A$0.62 / 0.7 = US$0.43). The commercial
version (ZBM 2.0 including system integrators parts and installation) should be
cheaper than the ZCell residential product. However, even if the costs were
identical, RFX’s product is still at least half the price of using diesel (US$1.00
per kilowatt hour) and much cheaper than using diesel plus lead acid batteries
and having to regularly replace batteries due to degradation and theft.
Consequently, the economics of RFX’s product work well in their existing
applications such as mobile phone towers (in remote and rural areas
without robust electricity grids) and off-grid applications. Not surprisingly
these applications are gaining traction and RFX has noted “first small
commercial orders” from a variety of system integrators.
6
One recent example is where RFX delivered batteries to a commercial
customer, in Wilunga, South of Adelaide. This customer chose to pay A$40,000
to have solar and two RFX batteries installed (~20kws per day) rather than
spend A$150,000 to extend poles and wires 600m to his facility.
Source:http://reneweconomy.com.au/2016/redflows-hackett-2016-is-inflexionpoint-for-battery-storage-91076
Another noteworthy example of the positive economics is that Ergon Energy
estimates “battery storage deployed at the grid level could avoid costs
associated with building and upgrading the network, potentially reducing
costs by 35%” (Source: page iii of Climate Council report). Ergon Energy is a
Queensland supplier of electricity to over 733,000 customers across over one
million square kilometres (or 97% of the state of Queensland). It makes logical
sense that RFX as a QLD supplier of batteries can assist Ergon through its
microgrid product the Large Storage Battery.
More on the ZCell or residential applications
RFX’s residential product, the ZCell, is initially expected to be priced at
between A$17,500 and A$19,500 fully installed. At the mid-point this equates
to A$0.62 per kw hour, which means the ZCell (when combined with solar PV
which costs around A$0.06 per kilowatt hour to generate) is not currently a cost
competitive solution relative to buying power from the grid in a metro location.
Despite the Tesla Powerwall having a lower headline price (in terms of upfront
capex), the installed price per warranted kilowatt hour is most relevant to
consumer economics and the Powerwall is, on our calculations, more
expensive than a Redflow ZCell as it costs A$0.72 per kilowatt hour
(installed and warranted). Refer to Figures 6 and 7 on page 8 for details on
how we come to this price.
The residential economics are not yet favourable
but that could change over time.
Currently it costs around A$0.06 per kilowatt
hour to generate power from solar (a ~sevenyear payback) and around A$0.62 per kilowatt
hour to store energy (based on the high end of
RFX’s installed price and with a shareholder
discount).
This means solar PV plus storage still has
negative economics at 68c per kilowatt hours
versus buying off grid for A$0.20-0.40 per
kilowatt hour. However, that doesn’t mean
innovators and early adopters won’t buy a
residential storage solution.
Figure 5: Residential price per kilowatt hour (warranted and fully installed)
ZCell low price Tesla Powerwall
and
installed
shareholder
discount
Warranted kw hours (1)
Daily throughput
Recommended Retail Price
(fully installed and operational)
Cost per kw hour
Shareholder discount
Installed price (2)
Cost per kw hour ( 2 / 1)
ZCell high
price and
shareholder
discount
ZCell mid point
with no
shareholder
discount
30,000
10.0
16,025
4.4
30,000
10.0
30,000
10.0
$17,500
$0.58
$1,000
$16,500
$0.55
$11,499
$0.72
na
$11,499
$0.72
$19,500
$0.65
$1,000
$18,500
$0.62
$19,500
$0.65
na
$19,500
$0.65
RFX’S ZCELL IS WARRANTED FOR 10KW HOURS PER DAY OVER 8 YEARS (30,000KW HOURS) WHILE TESLA’S
POWERWALL IS ACTUALLY WARRANTED FOR 16,025KW HOURS OVER 10 YEARS WHICH AVERAGES 4.4KW HOURS
PER DAY. REFER TO FIGURES 6 AND 7 ON PAGE 8 FOR DETAILS SUPPORTING THE WARRANTY CALCULATION.
SOURCE: MORGANS ESTIMATES AND COMPANY DATA
If we add the cost to generate power from solar PV (6c) to the storage price
(A$0.62 at the mid-point) then the 68c cost per kilowatt hour (for solar and
storage) is well out of the money versus buying off grid directly in the metro. In
my case buying off grid costs an average of A$0.35 per kw hour (including the
daily connection fee).
If we adjust for peak and off-peak consumption and include the daily
connection charge, then peak prices are around A$0.40 versus off-peak at
A$0.26. Despite the large spread in peak versus off-peak costs, household
storage (just for peak usage), still isn’t economic on our estimates. However it’s
not far off.
From a Net Present Value perspective (and assuming zero cost to generate
because storage is plugged into a Solar PV that has already paid itself off) then
the economics are as follows. Financially you’re A$10,413 to A$7,904 worse off
in today’s dollars (Net Present Value using a 7% Weighted Average Cost of
Capital) but that is a small price to pay, in some people’s opinion, for being
environmentally conscious/considered.
7
Figure 6: ZCell NPV (Net Present Value of the fully installed product and warranted kw hours) based on the lower end of installed
price after the A$1,000 share holder discount
Year
Warranted daily capacity (kw output)
Round trip efficiency
Kw's put in to get warranted kw's out
Annual kw from solar used to charge battery
Saving if it costs 35c per kw hour to buy directly off grid
(based on daily warranted capacity being 100% used
and excluding trip efficiency which is not relevant in
buying off grid)
Lost rebate of 8c per kw hour (kw put into battery X
what AGL currently pays a retail customer per kw hour
to sell their solar power directly into the grid)
Net saving
ZCell capex
Cashflow impact
NPV of cashflow using a 7% WACC
0
1
10
80%
13
4,563
2
10
79%
13
4,620
3
10
78%
13
4,679
4
10
77%
13
4,740
5
10
76%
13
4,803
6
10
75%
13
4,867
7
10
74%
14
4,932
8 Average Calculation
10
10 A
73%
77% B
14
13 C (A / B)
5,000
4,776 D (C X 365)
$1,278 $1,278 $1,278 $1,278 $1,278 $1,278 $1,278 $1,278
$365
$913
$16,500
($16,500)
($10,413)
$913
$370
$908
$908
$374
$903
$903
$379
$898
$898
$384
$893
$893
$389
$888
$888
$395
$883
$883
$400
$878
E (A X 365 x
$1,278 A$0.35)
$382 F (D x A$0.08)
$895 G (E - F)
$878
We calculate annual saving on 29,200 kw hours of energy that is warranted for use from the battery (the sum of row A x 365 days per annum).
We calculate the net saving is 27c per kilowatt hour being
1)
Not having to pay 35c per kilowatt hour to buy power off the grid (because the battery is charged off solar during the day which we assume has already paid itself off so the power is
free).
2)
Losing the 8c per kilowatt hour solar rebate which is what the energy retailer is currently paying consumers to sell solar energy into the grid in QLD.
Hence the net saving is 27cents being 35cents (saved) minus 8c lost (rebates not received for selling the solar power because you are using your solar to charge your battery).
Note, the ZCell NPV becomes a negative A$8,291 if we chose to ignore the
lost income (rebate offered) of 8 cents per kilowatt hour.
Figure 7: Tesla Powerwall NPV (Net Present Value of the fully installed product and warranted kw hours)
Year
Rated capacity
Warranted % of rated capacity
Warranted daily capacity (kw output)
Round trip efficiency
Kw's put in to get warranted kw's out
Annual kw from solar used to charge battery
0
1
2
3
4
5
6
7
8
9
10 Average Calculation
6.4
6.4
6.4
6.4
6.4
6.4
6.4
6.4
6.4
6.4
6.4 A
85% 85% 72% 72% 72% 60% 60% 60% 60% 60%
68.6% B
5.44 5.44 4.608 4.608 4.608 3.84 3.84 3.84 3.84 3.84
4.39 C (A X B)
92.5% 92.5% 92.5% 92.5% 92.5% 92.5% 92.5% 92.5% 92.5% 92.5%
92.5% D
5.9
5.9
5.0
5.0
5.0
4.2
4.2
4.2
4.2
4.2
5 E (C / D)
2,147 2,147 1,818 1,818 1,818 1,515 1,515 1,515 1,515 1,515
Saving if it costs 35c per kw hour to buy directly off grid
(based on daily warranted capacity being 100% used
and excluding trip efficiency which is not relevant in
buying off grid)
$695 $695 $589 $589 $589 $491 $491 $491 $491 $491
Lost rebate of 8c per kw hour (kw put into battery X
what AGL currently pays a retail customer per kw hour
to sell their solar power directly into the grid)
$172 $172 $145 $145 $145 $121 $121 $121 $121 $121
Net saving
$523 $523 $443 $443 $443 $369 $369 $369 $369 $369
Powerwall capex
$11,499
Cashflow impact
($11,499) $523 $523 $443 $443 $443 $369 $369 $369 $369 $369
NPV of cashflow using a 7% WACC
($7,904)
1,732 F (E x 365)
G (C X 365 X
$561 A$0.35)
$139 H (F X A$0.08)
$422 I (G- H)
#1. We calculate the annual saving on 16,025 kw hours of energy warranted for use from the battery (the sum of row C x 365 days per annum). We calculate the net saving is 27c per kilowatt hour
being
1)
Not having to pay 35c per kilowatt hour to buy power off the grid (because the battery is charged off solar during the day which we assume has already paid itself off so the power is
free).
2)
Losing the 8c per kilowatt hour solar rebate which is what the energy retail is currently paying consumers to sell solar energy into the grid in QLD.
Hence the net saving is 35cents (not spent) minus 8c (rebates not received for selling the solar power because you are using your solar to charge your battery).
Note, the Powerwall NPV becomes a negative A$6,971 if we chose to ignore
the lost income (rebate offered) of 8 cents per kilowatt hour.
For a detailed third-party review of the Redflow ZCell refer to
http://www.solarquotes.com.au/blog/redflows-zinc-bromide-zcell-battery-mayhave-the-edge-over-lithium-ion/
However it’s a big addressable market and price certainly
isn’t the only consideration
Despite residential storage having a negative NPV in metro, there is still a
segment of the market that is not price conscious and is prepared to pay a
higher price for a number of reasons including environmental awareness,
testing new products (at home before considering installing it in a commercial
8
environment) and of course there are many locations that are not buying power
at metro prices (like pumping stations in farms that are off-grid or mobile phone
towers).
Australian solar sensitivity analysis
In
Australia,
1.4m
households
have
solar
installed
(source:
https://www.cleanenergycouncil.org.au/technologies/solar-pv.html). If 2.5% of
these or 35,000 households decided to buy a RFX ZCell then this would
generate over A$100m in EBITDA for RFX, on our estimates. Cracking this
market alone would be sufficient to turn RFX into a highly successful business.
Whether or not 2.5% is a reasonable number remains to be seen but our logic
for using this number is based around segmenting consumers in-line with the
technology adoption curve. In academic literature, and in our experience in
the real world too, around 2.5% of the population is classified as
“innovators” and another 13.5% is classified as “early adopters”. If we
add the innovators and early adopters together we have 16% of the
market which is, interestingly in Australia, about the percentage of
households that have solar. While it’s difficult to quantify it’s reasonable to
assume that many of the solar early adopters went there because of a
combination of environmental and economic reasons (i.e. they wanted to feel
good about what they were doing but could also see good economics in solar).
Figure 8: Sensitivity analysis – there are 1.4m Au households with solar. What if...
Innovators
Au households with solar
Assumed storage takeup
Number of households
Recommended Retail Price to RFX
Revenue
Gross profit (at 30%)
OPEX
EBITDA
Early adopters
1,400,000
2.5%
35,000
13,429
470
141
13
128
1,400,000
13.50%
189,000
13,429
2,538
635
13
621
It is worth noting that if RFX were successful in selling to households, as
illustrated above, then this clearly would not happen over a single year but
perhaps spread over 5-10 years. Furthermore, if and when the economics of
storage improve, we would expect more households to adopt solar and storage
so the addressable market could easily exceed 1.4m households. RFX would
also need to share this market with other battery operators like Tesla and
Panasonic so the above would likely be spread across perhaps four main
manufacturers. We do not currently forecast anything as significant as this in
our numbers but are simply trying to illustrate there is significant upside
potential.
Furthermore, originally a portion of solar was installed when there were
government rebates which made them attractive investments (a 40c per
kilowatt hour government rebates for selling solar PV into the grid or 8c now in
QLD). On 31 December 2016 146,000 NSW households come off this
government-subsidised feed-in tariff and are a logical target market for RFX’s
ZCell.
Figure 9: Sensitivity analysis – there are 146k NSW households on solar rebates
which are expiring this year
Innovators
Au households with solar
NSW solar PV on 40c feedin tarrifs
Assumed storage takeup
Number of households
RRP to RFX
Revenue
Gross profit (at 30%)
OPEX
EBITDA
Early adopters
1,400,000
146,000
2.5%
3,650
13,429
49
15
13
2
1,400,000
146,000
13.5%
19,710
13,429
265
79
13
66
9
There is a broad spread of solar adoption across Australia with SA then QLD
having the most solar panels per household.
Figure 10: Household solar PV penetration by state (as at March 2014)
Source: http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4602.0.55.001Main+Features1Mar%202014?OpenDocument
Scenario analysis of the Telco applications
Another example of an already economic market is using the ZBM (or two of
them per site) to support remote mobile phone towers (where power costs
currently exceed $1 per kilowatt hour). There are 5m of these globally and
1.8m new towers expected to be installed in the next four years that are off-grid
or bad-grids (i.e. potential users of the ZBM). There are a number of system
integrators selling to this market so we simply presume that RFX operates
through one of these SIs who holds 30% market share (i.e. RFX’s addressable
market is 30% of 1.18m sites or 354,000 sites). Selling two ZBMs per site to
just 1,700 sites (0.53% or half of 1% of the addressable market) would be
sufficient to see RFX reach breakeven. While winning a meaningful portion has
much greater upside potential, we are not forecasting this in our numbers, just
illustrating the upside potential.
Figure 11: Telco tower scenario analysis
New (off & bad grid) towers by 2020
System Integrators market share
(RFX's partners market share)
Addressable market
RFX market share
Addressable towers (sites)
ZBM's per tower
ZBM's sold
ZBM 2.0 RRP price (US$8,000)
OUTPUT (A$m)
RFX potential revenue
RFX potential gross profit
(assuming a 30% gross profit
margin)
RFX cost base (our FY18 F)
EBITDA
1.18m
30%
354,000
TO REACH
BREAK EVEN
0.53%
1,872
2
3,743
A$ 11,429
30%
354,000
30%
354,000
30%
354,000
30%
354,000
30%
354,000
2%
7,080
2
14,160
A$ 11,429
5%
17,700
2
35,400
A$ 11,429
10%
35,400
2
70,800
A$ 11,429
25%
88,500
2
177,000
A$ 11,429
35%
123,900
2
247,800
A$ 11,429
$43
$162
$405
$809
$2,023
$2,832
$13
$13
$0
$49
$13
$36
$121
$13
$109
$243
$13
$230
$607
$13
$594
$850
$13
$837
SOURCES: MORGANS, COMPANY REPORTS,
10
Figure 12: RFX’s ZBM in a live telco application (supporting a remote off-grid mobile tower)
Microgrid
RFX’s LSB (Large Storage Battery) is a ~0.7MW system that consists of
around 60 ZBMs connected together and built into a shipping container. These
can be used to power large sites (i.e. a commercial location) or to time shift
(meaning grids don’t necessarily have to be upgraded for peak consumption
which prevents large upfront capex). Ergon Energy estimates “battery storage
deployed at the grid level could avoid costs associated with building and
upgrading the network, potentially reducing costs by 35%” (source: page
iii of Climate Council report).To date LSB sales for micro-grid applications have
been limited but given a recommended price of around A$758,000
(US$500,000) a few sales from this category have the potential to move the
dial in a meaningful manner.
11
Figure 13: RFX’s LSB can be used for peak shaving in grids
Sales strategy
RFX’s sales are through system integrator channels as listed below. Their
residential product (the ZCell) is due to be installed by solar installers in
Q1FY17 and RFX aims to initially have a number of installers in each key
geographic location.
12
Figure 14: Sales channels
Financials
Cash position and burn
RFX raised A$12.4m in 1HCY16. The company had net cash of A$4.3m at 31
December 2015 and shortly thereafter received a A$1.9m R&D tax credit. On a
pro-forma basis (including the recent capital raise) RFX had A$18.5m in cash
as at 31 December 2015.
RFX has an average underlying cash burn of A$600,000 per month (A$7.2m
pa). RFX expects around A$5.5m in one-off costs (with a cash impact – see
use of funds below) over the next 12 months. RFX generated A$225,000 worth
of sales in 1H16 and from a cash flow perspective has already announced a
substantially stronger first quarter in 2H16.
13
Figure 15: Use of funds
Changes to forecasts and valuation
We have reduced our short-term forecasts materially as RFX has recently
raised capital because short-term sales have not eventuated as originally
expected. Offsetting this we have increased our forecasts over the medium
term which, combined with 16% higher share count, results in our DCF-based
valuation increasing from A$0.39 to A$0.60. We apply a 15% Weighted
Average Cost of Capital for our DCF based valuation.
Following the significant share price rise over this calendar year, the share
price is now trading at our revised price target and we reduce our
recommendation from an Add to a Hold. We see substantial upside potential
upon successful execution and await further details of commercial sales to
increase our confidence in the outlook.
Figure 16: Changes to our forecast and valuation
2016F old
6.5
1.9
-7.2
-7.6
-7.7
-2.3
339.0
$0.39
$0.39
0%
$0.39
Revenue
Gross profit
EBITDA
EBIT
NPAT
EPS
Shares on issue
DCF
Weighted valuation
Premium / (discount)
Price target
2016F
revised % change
3.3
-49.8%
-2.1
-208.1%
-14.1
-96.8%
-14.6
-91.8%
-14.6
-88.0%
-4.0
74.5%
393.5
16.1%
$0.60
54.1%
$0.60
54.1%
0%
n.m.
$0.60
54.1%
2017F old
27.9
9.8
0.2
0.0
-0.1
0.0
2017F
revised % change
13.1
-53.2%
3.1
-68.2%
-9.7
4960.9%
-10.1 -25231.5%
-10.0 -14174.5%
-2.5
n.m.
14
Risk/reward
RFX has, in our view, a game changing energy storage product that is ripe for
mass market consumption. To date the company has not succeeded in getting
this product to market to generate meaningful sales. We believe the product is
now very stable and has impressive economics (i.e. a powerful business case
which creates financial, social and environmental value for end customers).
This means the key risks and rewards for RFX relate primarily to revenue
generation.
There have been many superior technologies that have failed commercially
due to poor sales and marketing execution. Beta versus VHS tapes and in the
early days Apple versus Microsoft are two prime examples of superior products
that failed to gain favour with the mass market and therefore generate
meaningful revenue.
RFX suffers a similar risk/reward profile, in our view. The company needs to
get its product to market for commercial adoption in order to generate sufficient
revenue for RFX to become a self-funding business. The reward for success is
substantial (as illustrated in our sensitivity analysis). However, failure to reach
this point in a timely manner could result in the company requiring additional
capital (as just experienced), potentially missing the opportunity or being
outmanoeuvred by a competitor. The ability to capture the market opportunity
would create substantial upside for shareholders from current levels, in our
view. The risk/reward now comes down to RFX’s execution skills and its ability
to generate meaningful product sales.
15
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16

AUS-RFX-160607-Consumer offering to open the door

Transcription

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