Apologies, I wrote 40x EBITDA and that was completely...

Apologies, I wrote 40x EBITDA and that was completely inaccurate. It was 40x NPAT and 14x EBITDA. I've had my coffee now, and gone back through the LGI IPO to benchmark Delorean's current valuation which I feel is massively undervalued vs the risk/reward on offer.

Below are the figures from the March LGI IPO, which seems to be pretty similar this time round from the reports. For my calculations I have included the $20m net debt post IPO, so a Market Cap of $125m and Enterprise Value of $145m. For Delorean, I have around $25m EV after the IPO - slightly conservative as I don't like to use the cash in the bank which will be expended on upcoming projects. So using FY21(actuals) of $2.9m EBITDA - the same time period as the IPO information I have - you get 8.6x EBITDA. For the 1H22 results which were obviously apalling, $300k EBITDA for the half - you get an annualised 41x. Until we get the annual report, hard to use this comparison.

Looking at the top line EV/Sales, I think we can get a good judgement of the different business models. They have a decent carbon/ACCU portfolio which is perhaps more valuable than pure bioenergy generation in the current market. ACCUs are generating a ~35% of EBITDA vs ~25% of revenue, so higher margin. LGI are being IPO'd at EV/Sales of ~7x. Meanwhile, Delorean after the most recent cap raise has EV/Sales of <1 based on trailing twelve months.


Finally, the Net Tangible Assets provides a good way to assess the margin of safety for me. My guess for Delorean is NTA is ~11c after the recent cap raise, and if you backout the cash which is going to fund the expansion, then NTA is 7-8c. So trading still at a slight premium to assets (9% post raise), but that's the market value of the $200m pipeline of projects. Meanwhile over in LGI land, net assets are around $13m vs $145m EV. Factor in the $25m cap raise, and the EV expands to around $36m, still a 400% premium.


And if you are wondering about the market value of their pipeline, it seems quite exuberant considering how quickly it is tapering off. The below is their projected growth sans any new greenfield sites not currently in development. Still, 14% volume growth over the net 2 years is pretty minimal one would suspect.


Overall, I think the market discount for Delorean vs its peers is clear. Essentially the market is ascribing near zero value to the pipeline because it can't get the capital financing for it.