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Sustainable fuels specialist Velocys plc (AIM:VLS) has just reported the completion of a bookbuild which was significantly oversubscribed, with 312.5m placing shares conditionally placed at a placing price of 8p. Velocys says that it is likely to raise £25m from the placing.

Velocys has also announced details of an open offer to be made to qualifying shareholders to raise up to an additional £2m at the placing price.

The company said the net proceeds of the fund raise would be used for capital investment in the current manufacturing capability to enable output of at least 12 reactors per year and, in addition, the build-up of reactor parts inventory to expedite commissioning of that equipment. It will also be used to advance the two company’s reference projects (Bayou Fuels in Mississippi, US and Altalto in Immingham, UK) to the point of securing external investment into the detailed engineering stage.

Velocys is working on new alternatives for jet fuel

Velocys is one of the more interesting companies out there with technology designed to solve the severe problem currently facing global aviation and its heavy use of fossil fuels. The company is an Oxford University spin out which processes sustainable fuels from waste materials for use in aviation and heavy goods transport.

In its numbers released at the end of June the company said it generated £8.3m in revenue. It recorded a gross profit of £3.3m from its first major commercial customer contract.

“Velocys has a technology solution to accelerate the decarbonisation transition for global aviation clients which has been commercially demonstrated and is ready for commercial scale deployment,” explained Henrik Wareborn, CEO of the company. “As a capital-light, licensing company which benefits from recurring revenues from the full-service technology packages we provide to our clients, we have a strong platform for scalable growth.”

Shares in Velocys saw a meteoric rise early this month, briefly touching the 13p mark, although they are currently trading at just over 8p. Stock has sold off slightly on the news this morning.

We like the Velocys story

We continue to like the story here. The aviation industry’s contribution to planet warming is undeniable and Velocys provides a very real solution that is obviously attracting the attention from some very large operators in the airline space, including IAG and Southwest Airlines.

The market cap for the stock is 86m and shares are still trading up 45% on where they were a year ago.

Velocys will also set aside funds to back process guarantees and equipment warranties to clients and will need general working capital requirements over the next 24 months, including the potential co-payment to secure a site option extension for the Altalto project; and provide a line of sight to achieving net positive cash flow during 2024.

As part of the placing, hedge fund Lansdowne Partners, a substantial shareholder of Velocys, has subscribed for a total of 71,405,393 placing shares. Following completion of the fundraise (assuming subscription for the open offer Shares in full), Lansdowne will have an aggregate interest in 255,156,632 Ordinary Shares, representing approximately 18.2 per cent. of the enlarged share capital of Velocys.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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