11/08/2023

Introduction:

Waste plastic to hydrogen company, Hydrogen Utopia, was listed on the Aquis Exchange at the beginning of last year at 7.5p. At the start of this year, backed by a strong trail of newsflow and the fact that it is right on the zeitgeist as far as pollution and greenhouse concerns, it moved up to the LSE. This was quite an achievement in current stock market conditions given the way that the requirement to get to the main board in London is now a £30m market cap.

Funding

Perhaps surprisingly since arriving at the LSE, something which can be regarded as making the company most accessible to both retail and institutional investors, the share price has drifted down to 4p. This is despite the announcement, as recently as last month of the award of its Irish subsidiary of up to €450,000. Indeed, this grant takes us to the heart of the bear argument against HUI, and shines a light on the recent medical cannabis deal the company has made in North Macedonia. But to address the funding runway matter first: even a cursory glance at the financials will reveal that even without fresh grants and deals, HUI can exist on current cash until the end of 2024, nearly a year and a half. This is of course a much more comfortable position than the majority of the companies on the London market.

Ohrid Organics

So why do the shorters still take potshots? Presumably, this is on the notion that HUI will not be able to raise the funding for its pan European waste plastic to hydrogen plants? Well, this possible eventuality has also been addressed via a North Macedonia deal, with the company having an option to buy 49% of medical cannabis cultivator Ohrid Organics.

The initial revenues from the deal are likely to come in during Q1 2024. The benefit of this is that it should not only extend the company’s funding runway beyond 2024, once revenues kick in fully, they will ensure an infinite funding runway. Indeed, HUI’s share of the profits should mean it will easily find finance for the rollout of its strategy. This is said on the basis of HUI’s share of a forecast €6m earnings next year, €10m in 2025, and significantly more as Ohrid starts building out its license to build up to 37 greenhouses. This represents up to 50 tonnes of high quality medical cannabis a year in production, or €100m gross revenues, net of €90m, making Ohrid, the cheapest producer in Europe.

Conclusion: Shares of HUI are currently trading well below their IPO price despite significant progress across Europe, funding news, and the contribution to come from North Macedonia. Those who ignore these factors are either extremely selective in their analysis, have a sinister agenda, or simple do not understand the company. A revival in the market cap between now and first medical cannabis revenues would appear to be the most likely scenario. After all, HUI shares were trading at 17p before EU grant and the North Macedonia news.