By Michael Elkins
Bank of America initiated coverage on FREYR Battery SA (NYSE:FREY) with a Buy rating and $13.00 price target. The battery manufacturer is one of many startup producers in the space but one of the very few that has a proven cell chemistry, committed offtake and demonstrated success raising strategic capital. The company plans to develop gigafactories in both the northern part of Norway and the United States. Today, the company is pre-revenue and will likely remain so through at least the mid-decade.
There are far more failures than successes so far in the upstart gigafactory business. That said, analysts see FREY as the closest thing to European peer Northvolt, a business that has grown from an idea in 2017 to a reported $12bn valuation in 2022 with >$8bn raised and more than $50bn in orders.
They wrote in a note, “Today, the company is pre-revenue and will likely remain so through at least the mid-decade as revenue recognition will accompany startup of giga-scale production, timing of which remains a key source of debate. But since its 2021 PIPE offering, the management team has been active and today holds a series of supply allocations for raw materials, equipment and inspection services in addition to a range of conditional offtake agreements and binding sales contracts for its future products. With two sites formally announced in Mo i Rana, Norway and Coweta County, Georgia, (colloquially referred to as “Giga Arctic” and “Giga America”) and a target of more than 100GWh of productive capacity by 2028, management has indeed laid the groundwork for success. That said, this execution story is far from over. The below frames out why we like the story, the positioning and the valuation where things sit today.”
Bank of America’s rating and view hinge back to valuation. Under a heavily risked SOTP framework that discounts project cash flows they see fair value at $13. The analysts are clear that downside risks are significant with continued cash burn ahead of revenue inflection. However, the risk/reward skew is compelling and project derisking should lead to value accretion.
Shares of FREY are up 1.24% in mid-day trading on Friday.