Orège has announced a substantial rights issue (1.8x market cap) to strengthen its balance sheet and accelerate commercial development. The trading update shows a significant ramp-up in orders in H1 and our FY19 revenue forecast (2.8x FY18 sales) appears achievable.
Orège announced a €49.2m capital increase (€1.24/share subscription price, 85 new shares for 40 existing shares). EREN Industries, which currently owns a 69% stake, and other third-party investors have committed to subscribe to 76.5% of the issue (€37.6m). The proceeds will be used to strengthen the company’s financial position (€33.9m will be used to capitalise a large portion of EREN’s shareholder loan to Orège) and accelerate the growth plan (including developing new products and stepping up commercial efforts in new countries). News of a capital increase was expected as there is a legal requirement to recapitalise the company before the end of 2019. We calculate that the capital increase will drastically reduce net debt to €17.8m at the end of FY19 (assuming only the already subscribed part of the capital raise or to €6.2m assuming full subscription) vs our current forecast of €55.4m. As we forecast that Orège will be cash flow negative in FY20–21, we would expect it to require additional funding.
With the news of the capital increase soon out of the way, we expect market focus to now shift to the company’s commercial development. Orège has provided a trading update for H1, reporting new contracts in the US, Germany and, for the first time, in Japan. In addition, the company reported advanced talks in the UK, a new project in Spain and ongoing negotiations in Italy. The orders announced so far imply significant revenue growth vs FY18. Our current FY19 forecast requires significant new orders in H219, which appears achievable considering the size of the current pipeline. We expect more details at the H1 results in September. We will update our estimates following the completion of the capital raise.
Business description
Founded in 2006 and listed on Euronext in 2013, Orège is a clean-tech company that has developed an innovative, patented technology (solid, liquid, gas – SLG) to significantly reduce sludge treatment costs and improve environmental sustainability of the treatment process. Its core markets include North America, the UK, Germany and France.