Quadrise Fuels International

Quadrise is the emerging supplier of multi-phase superfine atomised residue (MSAR), a low-cost alternative to heavy fuel oil for the shipping, refining and power generation industries. It continues to make progress in key projects in Saudi Arabia, Asia and Latin America and with major shipping line Mærsk. The recent placing provides support for these projects as they progress towards the commercialisation phase. Material progress towards commercialisation has the potential to trigger upward movement in the share price towards our revised indicative value of 16.1p/share.

Progress Being Made On Key Projects
Following feedback from the earlier seaborne trials of MSAR with Mærsk, the world's largest shipping line, an upgraded marine formulation is now ready for further trials and potential-commercial deployment. Quadrise has signed a Memorandum of Agreement with Rafid, its Saudi Arabian partner. This follows approval by Saudi Aramco of MSAR for trial across selected refineries. Longer term, this project will encompass the bulk of the available heavy residue in Saudi Arabia. The agreement with YTL PowerSeraya Limited in Singapore has been extended. Discussions with partners in Mexico, Central and South America are also progressing.

Placing Supports Projects
To support these projects as they move towards the commercialisation phase, QFI has raised £3.5m (gross) through the placing of 50.0m new ordinary shares at 7p per share. The proceeds are expected to support the cost of managing projects until they are generating net positive cash-flow, as well as covering general working capital requirements and the potential purchase of additional MSAR manufacturing units.

Valuation: Appreciation In Value Through Commercialisation
Our valuation is based on potential cash flows from the key projects taken over 15 years and applying a blended discount factor of 15% to reflect country and execution risk across these projects. We leave our FY13 estimates broadly unchanged, making a small revision to interest receivable and adjusting for the new placing shares. We therefore revise our indicative value from £121m (16.8p/share) to £125m (16.1p/share). We see potential for an uplift in share price towards our indicative value as each of the key projects makes material progress towards reaching the commercialisation phase.

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