Acta S.p.A - EcoIsland Confusion

http://www.actagroup.it/

Acta S.p.A Logo

I first covered Acta (LSE:ACTA) in October 2012 when the stock had a market capitalisation of circa £6m and indicated that the firm was a 'low-risk, high reward option to add diversity to a small cap portfolio'. Through a combination of good corporate progress and a number of contract wins, Acta has since raced ahead to a current share price of 8.88p/share representing a 45% increase from the initial share price of 6.13p. However, the share did actually peak at 11.75p/share in recent weeks (a 92% increase from the initial article), but has since fallen back due to confusion over a specific contract with EcoIsland - an Isle of Wight based community interest group. With the share price significantly off the peak, the current market capitalisation for Acta stands around £12.5m.

This article is a follow-on from the below posts. For full context and information, read these articles first:
http://www.theel1tetrader.com/2012/10/acta-spa-hydrogen-propelled.html


Before highlighting the EcoIsland issue I will briefly cover the news that Acta have released since November. On November 21, the first real piece of news was released following the article. It revealed that FutureE (a German fuel cell solutions company) had signed a five-year agreement with Acta whereby Acta's low-cost EL500 electrolysers would be a component of FutureE's 'fuel cell and electrolyser system' known as Jupiter Independence. The total sales value of the contract over the three years is estimated to total 3 million euros. Acta's CEO Paolo bert commented: "Acta is delighted with the interest from FutureE in our electrolyser products. It further demonstrates the increasing demand in the market for low cost electrolyser technology which produces clean and dry hydrogen and more importantly, illustrates that Acta has become a key player in this market."

Following this the company noted that it was going to exhibit some of its products at the Tokyo Fuel Expo 2013 - an event that was held between February 27 until March 1. With increasing interest in Acta's products from the Asian market plus the event itself being of a large scale, it would not be surprising to see orders via new links to companies in Asia drift in over the next few months especially as the event only finished yesterday.

After this news, Acta confirmed it had received a ~400k euro grant from the EU to subsidise the Alkammonia project that seeks to develop ammonia-led alkaline fuels. The project leader is AFC energy and the announcement in mid-December noted that subject to final approvals, the project would commence in March 2013. Consequently an RNS may be upcoming on this front potentially outlining the expected timescales.

Courtesy of freedigitalphotos.net
Another significant RNS was released in mid-December with Acta effectively securing another foothold in Asia although more importantly in India. A letter of intent had been signed with MVS Engineering (India's largest supplier of industrial gas equipment and solutions) for a distribution partnership. MVS is forming a new division called MVS Energy Solutions ("MVS Energy") to address the growing need in the Indian market for back-up power solutions. Acta and MVS Energy intend to sign a distribution contract early in 2013, once local administrative procedures have been completed, for the distribution of Acta's electrolysers and related products into the Indian market. The objective of the partnership is to allow the introduction of on-grid and off-grid integrated fuel cell back-up power solutions based on on-site hydrogen generation. A follow up RNS has not yet been released, but if the agreement is confirmed, the significance of the news can't be understated considering the underdeveloped nature of the Indian backup power market yet the substantial demand for low-cost products. Even in July/August 2012 there were extensive power outages in India that will inevitably have increased demand for such products - currently many firms have resorted to storing diesel for their current diesel-powered backup generators.

Just before the New Year Acta did release some negative news in the form of a placing, however this was necessary in order to facilitate for the increasing number of orders. The company completed an institutional placing of ~42m shares in order to raise ~£2.1m. The Company has seen consistent month on month growth in enquiries and orders. There are currently a number of additional partnerships in relation to sales, distribution and production under negotiation with potential Asian partners. As of 30 November 2012, the Company's Forward Order Book of scheduled orders and contracts awaiting call-down stood at 970,000, with new orders coming in regularly. Additional written Proposals awaiting acceptance stood at 620,000; and Project Requests (partner project requests under negotiation at identified volumes and pricing) represented a total value of in excess of €10 million.

Entering into 2013 were a series of holding announcements including the upping of stakes by several external investors in addition to a purchase of 100,000 shares by a Non-Executive director. After these, Acta announced yet another commercial partnership, but this time with M-Business Resourcing who will help Acta address backup power solutions for the telecommunications industry south-east Asian countries such as Indonesia and Malaysia. This also represents another significant milestone for the company that are becoming ever more frequent. Furthermore, in response to growing orders the company announced it had acquired 600 square metres of additional land adjacent to its current production location in Pisa, Italy. More staff were also being drip-hired to help cater for the increased demand - expect an increase in 'administrative costs' in the next set of financial statements.

ITM Power LogoHowever, it has been the EcoIsland debacle that has dominated the recent share price performance and investor sentiment. On February 21 Acta had announced that it had signed a letter of intent with EcoIsland for developing their flagship Isle of Wight project. "Acta will be the domestic hydrogen partner for Ecoisland. Initially, Acta and Ecoisland will run a domestic renewable energy storage trial project for one house on the Isle of Wight. Should this prove successful, Acta and Ecoisland intend to work together to promote, finance and supply domestic renewable energy storage solutions for installation in potentially half of the 65,000 homes on the island, as well as in homes on the partner islands of the Ecoisland Accord, including Jersey, Fiji and the Seychelles. The parties expect that the trial will commence by the end of April 2013 and will run for approximately three months." The project seeks to make the Isle of Wight self-sustainable in terms of food, power and water by 2020.

Ultimately, Acta has released a copy of the letter of intent and has quotes from both the CEO of Dantherm Power (who Acta would be working with in the project) plus founder and CEO of EcoIsland, David Green confirming the participation of Acta. The problem is that it is ITM Power who were initially granted the project so this new agreement with Acta appears to be a duplicate of that. Furthermore, following Acta's RNS EcoIsland have come out and said that ITM Power remains the choice for the project. Obviously, this cannot be the case and thus Acta has sought to identify what the actual case will be. This was requested last Monday, but there has not been an update since which hints that this has been a mistake on EcoIslands behalf and that there is not 'an easy explanation'. In any case, it is hard to see how the fault is Acta's considering that a letter of intent has been signed. The uncertainty has impacted the share price. The price before the February 21 announcement was 10p/share, the current price is 8.8p.

Evidently, Acta has been making strong progress recently and the strong share price movement is testament to this. To this end, the EcoIsland confusion appears like an undesirable distraction and even if this had not been announced it is likely the share price would be higher than the current price. If Acta does not get the go-ahead for the EcoIsland project the share price is highly likely to drop further although a significant proportion of this is likely to already be factored into the share price. Any large pullback is likely to be a good entry point especially since Acta's is reliant on multiple smaller agreements at present rather than any single massive agreement. With the number of contracts and commercial partnerships having gained traction in recent months, the strong corporate performance is likely to continue in the future. Acta's is gaining a more global presence which will add both diversification and brand value. Even with a market cap that has doubled since the initial article, Acta does look undervalued and a market cap of at least ~£15m-£18m looks more justified.

UPDATE 23/09/13: I have moved Acta from Buy to Neutral at 10.13p for a 65% profit. The Interim Results next Monday is likely see the share price drop as it has had a good short-term bull run. Acta remains on my watchlist

11 comments:

  1. banked at 74%+. awesome site

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  2. Love this company go actaaaa

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  3. Sefton Resources is trundling slowly downhill to your 0.75p target

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  4. ITM Power are the company to invest in.

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  5. Totally agree, ITM Power will be a huge company, proper sales have already started

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  6. Acta should be careful following and copying ITM Power; its not good for their pr and technologically they are simply miles behind.

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  7. Orders coming through for the new system - see May 22nd RNS - SP responding nicely and the Ecoisland farce a distant memory. Time for you to provide an update maybe Mr El1te - would be very interested in your latest info - I love this technology and the opportunity - I think ACTA current market cap only £12.5m - worth more and has to be on the radar of a bigger player IMHO

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    1. Hi there,

      Rest assured, an update will be made albeit not imminently. Next site update will be in mid-June for external reasons. Hope the rise continues. 9.88p live

      El1te

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  8. Hi El1te,

    saw you moved ACTA from buy to no rating. Any particular reason? - feeling a negative reaction to Mondays interim results? I followed ACTA from your first review and am sitting on a nice profit, so thanks!

    But with news of a repeat order and hopefully upcoming news of successful trials with major telecom companies. Is that not reason enough to keep ACTA as a buy, plus the potential to break into the Chinese market with a new distribution agreement. Especially seeing as ACTA once hit the dizzying heights of 70p years ago! They've had huge progress this year, don't you think?. Although I'm not a pro at TA like you, how's the chart currently looking? :)

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  9. Hi there,

    Well done on your profit! The main reason is the results - I am expecting revenues to still be low and coupled with R&D costs I can't see them being good. However, as we know, Acta is a forward-looking company so I will be looking to see if there is an attractive entry point post results. The outlook statement will be important.

    I agree that there is certainly potential for positive fundamental news but I view that as being released in the medium term (next 3-6 months) as opposed to the short-term. Therefore it made sense to take Acta off, just pending the results. Worst case scenario is they drop back a couple of pence, but the TA view does show the shares to be fairly overbought, even with the important break of 10p. Any signa that the trials/work done by Acta will be converted to revenues is what I'm looking for in the results. I'm also interested in their current cash balance.

    El1te

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