Frontier Energy Ltd (ASX:FHE) has earned a ‘buy’ recommendation from BW Equities on the belief that the owner and developer of the Bristol Springs Renewable Energy Project (BSP) in Perth will be the first large-scale green hydrogen producer on the ASX.
The research firm has initiated coverage of Frontier with a target price of $0.71 per share.
It based its recommendation on Frontier’s completion of the pre-feasibility study for the project as well as the shortly expected preliminary front-end engineering and design (pre-FEED) study.
Frontier shares are currently trading at around $0.56 per share and has a market capitalisation of $160.86 million, according to the ASX.
The following is an extract from the research firm’s report:
The BSP is fully permitted for initial development of a 114 megawatt (MW) solar farm on 195 hectares (ha) of freehold land (Stage 1); which will be used to produce about 4.4ktpa of green hydrogen. The project is within close proximity of all major infrastructure, namely: (1) the SWIS electrical grid, (2) potential off-take partners, (3) highways, (4) major ports, (5) water access, and (6) urban centres.
Significant opportunity to expand. A recently completed Expansion Study shows a further 324MW of electricity can be produced (ie. 438MW total) from a solar-only solution on adjoining land (which Frontier controls). Further, a collaboration agreement and potential acquisition (via its interest in Toronto Stock Exchange-listed Metallum) of Waroona Energy could see this swell to 700MW. FHE’s ultimate ambition is to generate more than 1 gigawatt (GW) of renewable energy at the BSP.
The green hydrogen investment thesis. We expect green hydrogen to play a vital role in decarbonising the planet given it is the only way for many industries to reduce emissions (ie. ammonia). Additionally, Australia seems likely to take a leading role in the industry’s ascent, given its endowments of endless sunshine, strong winds, excess land, green metals deposits and well-developed infrastructure.
Near-term catalysts. Frontier is targeting final investment decision (FID) for the second half of 2023, with key milestones to achieve between now and then including: (1) Pre-FEED study (4Q22), (2) ETAC (1Q23), (3) off-take agreements (early CY23), and (4) project funding (early/mid CY23).
Initiate with a BUY rating and $0.71/share price target. Frontier’s BSP is on target to deliver about 4.4ktpa of green hydrogen production in the near term (CY25), with industry leading costs (LCOH about $4.50/kg), modest capex (Stage 1 about $250 million) and an ability to scale about 10 fold over time. Additionally, we expect there will be no shortage of funding options available for Frontier, given current investor appetite for the sector and a plethora of state and federal initiatives aimed at supporting the industry.