Free share tips posted weekly! This week’s free share tip is Velocys (VLS).
AIM-listed Velocys announced two supply deals last week and the news saw the company’s share price double within a couple of days. There has been volatility since then and profit taking is likely given the high volume of trading which took place. The company may also take advantage of the share price strength to raise some new equity. Hence we would be wary of chasing the share price higher in the near term. However, the long term future looks very promising and any weakness could present an opportunity to buy in before it is too late.
Velocys is an international sustainable fuels technology company. It designed, developed and now licenses proprietary Fischer-Tropsch technology for the generation of clean, low carbon, synthetic drop-in aviation and road transport fuel from residual woody biomass and municipal solid waste. The Velocys technology can also enable the production of zero carbon fuels for the airline industry from renewable power and carbon dioxide.
The company is currently developing two reference projects. The Bayou Fuels project in Natchez, Mississippi in the US incorporates Carbon Capture and Storage. The Altalto project in Immingham aims to produce fuels that significantly reduce both greenhouse gas emissions and key exhaust pollutants for aviation and road transport. The company is a spin-out from Oxford University. In 2008 it acquired a US business which was based on complementary reactor technology developed at the Pacific Northwest National Laboratory. Velocys is currently headquartered in Oxford.
The two deals announced last week are significant. The deal with Southwest Airlines covers an expected 219 million gallons of sustainable aviation fuel at a fixed price over a period of 15 years. After blending, this will enable approximately 575 million gallons of net zero SAF and the Bayou Fuels biorefinery is due to start commercial delivery of fuel as early as 2026. A memorandum of understanding has been signed with International Consolidated Airlines Group and this is also connected to the Bayou Fuels project. International Consolidated Airlines Group’s constituent airlines, such as British Airways, Aer Lingus and Iberia will purchase an expected 73 million gallons of SAF, in aggregate, at a fixed price.
These are clearly important deals and reduce the potential downside of Velocys as an investment proposition. Nevertheless, the shares remain high risk. The company operates in an attractive niche area and one which is very much in favour at present. There is a strong possibility of further equity being raised and if such news is released then there could be a dip in the share price, presenting a buying opportunity. We put forward BUY ON WEAKNESS advice.
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