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Here’s Why This UK Energy Stock Has the Potential to Rise Over 1000% in 2022

The UK Energy market is in turmoil.

 

Finding solid investments with high growth prospects in the Utilities sector is becoming increasingly difficult and risky.

 

There is however a company that is riding the wave of the energy crisis and providing savvy small cap investors with a golden opportunity. 

 

In this article I will be uncovering a gem in the Reserve Power space that is potentially set to take the lions share of this lucrative sub-sector in 2022…

 

Understanding the Arena

Before I share the details of the stock in question, it’s worth briefly outlining the opportunity presented by ‘reserve power’ for those of you that are unfamiliar with the term.

 

Did you know that when the main the power grid experiences increased levels of demand, there are independent sites capable of providing flexible reserve power solutions to supply additional energy at these times of ‘critical use’?

 

Without the back up provided by these reserve energy power stations the main grid could be caused to fail, leading to a catastrophic backlash for the main market energy suppliers.

 

Consequently the demand for companies offering such support to the main grid is increasingly high and expected to continue to grow throughout 2022 and in the years to come.

 

Introducing... Mast Energy PLC (LON:MAST)

Not only does this UK based site operator sit squarely within the sector in question, after some deep investigation into the current share price versus the assets owned by the company, there appears to be a glaring disconnect between the price it is currently trading at and the true value of the stock…

 

A recent interview with Mast Energy’s Non Exec. Chairman, Louis Coetzee on ‘The Sunday Roast’ touched on this notable discrepancy, where the Mr Cotzee labelled the current share price as ‘bizarre’. (I’ve included a link to the full interview at the bottom of this report.)

 

I’m going to outline for you below in no uncertain terms why I believe that Mast Energy appears to be an excellent opportunity to pick up a stock in an industry experiencing heightened demand at a significant discount.

 

Let's take a look at the FACTS

Mast Energy achieve their revenue based primarily on their ability to generate reserve power, calculated in Megawatts (MW) which is done at their reserve power sites.

 

The company currently own 4 such reserve power sites. One of which is fully operational, the other 3 are all ‘shovel ready’ and at varying stages of development.

 

A brief snapshot of each is presented below along with earnings forecasts and site valuations.  All of which will allow us to put an overall valuation of the company which we can compare directly with the current share price (…and this is where things get REALLY interesting)

 

The nitty gritty

To get a short term valuation and Share Price (SP) we can run the following calculations:

 

50MW (total on target monthly production by the end of 2022) 

£5,000 (The amount of monthly FCF each MW is worth)

£250k per month in FCF ( £3m FCF per year)

 

We can then introduce a conservative valuation multiple of 8 to give us a figure of £24m

 

Finally, we add the value of the 4 sites listed above (£20m) to arrive at a near term valuation of £44m 

 

 

If we want to go one step further, we can also expand on this and use the information that we have at our disposal to run a similar calculation and derive an anticipated long term valuation and share price.

 

300MW (total long term monthly production target) 

£5,000 (The amount of monthly FCF each MW is worth) 

=

 £1.5m per month in FCF ( £18m FCF per year)

 

x 8 (conservative valuation metric)

 

£144m + £20m (total valuation of sites) 

=

 and a long term valuation of  £164m

 

What this all means for early investors

We now have our short term valuation of £44m and our long term valuation at £164m

Armed with this information we can look to derive our short term and long term share price targets from looking at what price Mast Energy current trades at.

 So, the big question is: What price DOES Mast Energy PLC currently trade at?

 

The company is currently trading 3p per share, resulting in a valuation of £5.5m

….a fraction of the value of the sites that they currently have under ownership!

In fact, this figure only appears to factor in the value of 1 of the company’s sites and doesn’t include any of Mast Energy’s Free Cash Flow generating capacity for the power stations in their portfolio.

From this current level, if the stock were to rise and hit our short term (£44m) and long term (£164m) valuations, this would give a share price of 24p for the short term and 89p in the long term.

A whopping 700% and 2,900% increase respectively!

The demand for the energy that the company is currently producing AND can produce in the future is clearly already there. Touching back on the Sunday Roast article that I mentioned earlier, Mast Energy’s Non-Exec Chairman stated categorically that the energy that they produce can be considered to be “already sold”.  It’s simply a case of getting to maximum production as quickly as possible.

To listen to the full interview, click here:  Sunday Roast Interview – Louis Coetzee

 

If I were to pick a stock in a booming sector that has both significant value generating potential and a severely undervalued share price, Mast Energy would most certainly be it.

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