AIM quoted Getech (GTC) has been a familiar subject here of late, not least, as it is seemingly accelerating its diversification away from its traditional core operations.
For anyone unfamiliar with the company, it is worth briefly recapping in that GTC provides the data, software and information that companies and governments need to better discover, develop and manage energy sources and natural resources. The products are then enhanced through its service, leveraging the company’s technical offering and skills set.
Despite being a relatively small player, GTC has by all accounts been highly regarded across its end markets where it boasts a Blue Chip customer base, particularly throughout the petroleum industry. This includes names such as BP, ENI and Saudi Aramco who use the technology in relation to exploration and the best way to enhance its assets. More recently, given the changing and evolution of the energy sector, GTC under the guidance of CEO Jonathan Copus has been looking to extend its reach beyond its core markets into underserved markets and areas such as mining and renewable/greener energy. Having back in January announced a strategic partnership centred on the hydrogen space which included SGN Commercial Services and H2 Green, GTC has most recently embarked on raising £6.25m via a placing and a small open offer element in order to strengthen its base and drive the alternative growth potential. There has perhaps and understandably been a mixed reception from the private investor community on this, with arguably more questions as yet than answers, resulting in some would-be buyers preferring to sit on the fence. As a holder of the shares, I have been fortunate enough to catch up with CEO Jonathan Copus and the in coming Chairman Richard Bennett in order to hear more of the plans and aspirations for growth at GTC.
Copus is immediately open and engaging and says that going forward they want to be positive in communicating further with the private investor alongside its Institutional base, which is sure to be welcomed. As part of that the company has recently appointed a financial PR company that was previously absent, whilst there has this year been a change of broker with GTC moving to Cenkos from WH Ireland.
To kick off our catch up, the tie up with H2 Green was obviously a good place to start and I was keen to hear more in order to gain some further insight into where GTC is now at.
Copus says that H2 Green is very much focused on the hydrogen-decarbonisation space where the annual commercial transport market which was worth an annual £12.5bn in 2019 prior to Covid is a clear end target.
“What H2 Green has done, is come up with a tangible proposition that has the ability to generate profit through establishing a network of Hydrogen hubs. Each one of these will have equipment to generate hydrogen and store it at scale and then re-sell it, with the target customers being HGV’s, buses and trains”.
As for GTC’s involvement, the CEO continues, “we got involved with them by applying our geospatial skills to solve problems they encountered and support the opportunities they were targeting”. This sees GTC providing the technology around in-depth digital maps across the environment where vast ammounts of data can be visualised in a powerful tool for customers and the likes of land owners throughout the value chain. H2 Green already has a very strong network of potential customers including land owners and government says Copus and is now extremely well positioned to provide hydrogen at scale for transport.
This wouldn’t be on an ad hoc basis though, rather, real infrastructure to deal in tons which would be a disruptive game changer that in turn could be transformational for GTC.
Whilst it may of course all sound like just another blue sky hot air story, Copus is at pains to point out that the proposition is real and isn’t something akin to bringing fuel cells to the market. The exclusive agreement with SGN is seen by him as a major step forward with GTC’s workflows being used in relation to implementing the hydrogen hubs and which, through the H2 Green acquisition will prove beneficial to shareholders.
Copus expands, “Getech shareholders will get direct asset exposure to the value that will be created and it could be completely transformational for us. Twenty or thirty hubs would still likely be less than 10% of the hydrogen market, but that would be able to generate a £30m to £40m EBITDA per year opportunity”. It all sounds exciting stuff and ties in with the wider market excitement around the hydrogen space and the CEO says that it is a tremendously exciting opportunity. However, what he describes as a changing business model for GTC doesn’t look likely to end here as Copus adds, “although this is the first one of these sort of things, I don’t expect it will be the last, as there are other opportunities for us in these emerging value chains”.
There are of course questions to ask, not least as to the funding of such a venture and the prospect of GTC shareholders being called upon in further funding rounds. Copus explains, “the way this is structured is very Getech shareholder friendly, in that there is a very low upfront capital cost to us and it remains that way going forward”. The CEO points out that they spent a lot of time looking at the model and there has been a high degree of diligence undertaken and the way it works is very beneficial to GTC shareholders. This sees H2 Green/Getech bringing in funding partners which effectively carry them through the initial capital cost of the project with a significant interest being retained by H2. “The entry point provides low cost exposure capital costs for us, which on a carry is basically zero”. Copus also says that on the EBITDA figures there would be no capex involved, rather, that would all be cash. But, is this a realistic proposition for shareholders to embrace, rather than just sounding like a blue sky ride? “I am very confident it is,” says Copus, “as it is a structure that is already used in the renewable space and there are three identifiable types of investors that this would attract”. One, he says, would be a strategic investor, at which point he emphasises that as a part of the SGN agreement the latter had asked for exclusivity relating to first refusal on a development/s pushing ahead. Secondly, Infrastructure funds are mentioned too, as they have moved to really embrace earlier stage projects as opposed to merely coming on board when assets are complete. The third, but which hasn’t been factored into what he says are conservative estimates going forward is government funding.
Copus believes that government will very likely get involved in such capital projects given the nature of these and the accelerated move to greener and renewable energy.
In terms of timing the CEO says that they are working with SGN now, with both parties bringing things to the table where they are focused on structuring the next steps and advancing opportunities as quickly as they can. Copus also adds, “these are not the only asset conversations that we are having though, so don’t be surprised if we also announce something with other people”. There is no hint yet as to what that may entail, but it could be something for shareholders to keep their eyes open for in due course. I enquire as to whether long term blue chip customers such as BP could also feature on this journey of a changing business model and Copus takes the cue. “Absolutely, but we aren’t looking at doing new things with new people. We are already a very trusted partner with these big global players and that provides us with an opportunity to take our products and skill sets to help them de-risk their own transition to renewables”. Moving away from the current excitement and hydrogen we touch upon mining which looks like another area of growth potential for GTC. Copus says that despite decarbonisation, there remains ongoing demand for metals and within that an increasing diversity.
Some 5-10% of GTC’s annual revenue is already generated from the mining industry through its providing data solutions and services to assist them.
However, the plan now is to really leverage its highly respected Globe product which has been very successful across the oil and gas space and is a strong generator of recurring revenue in that field.
Copus says that the product was specifically written and developed for oil and gas and is constructed in the language of that industry, so given to the mining industry in its current form it isn’t easily understood, hence thus far it hasn't seen a larger adoption.
But, the nature of the product is that it can actually be extremely useful and Copus says that Globe has been used successfully by one mining major in particular for a while now, where it has had some very interesting results.
“On the back of that, they have been talking to their partners and we have now seen a rise in interest from the wider mining community, so with us now having conversations, there is an opportunity that we just want to get out and grab”.
This involves GTC now looking to offer the Globe product to the mining market, but in a more sector specific format which could provide some major opportunities. Globe is like a complete digital spread of the earth and an extensive data base of information showing masses of complex information.
All very clever stuff of course, which Copus says they know is very useful to mining companies and perhaps more so in a changing climate where environmental concerns are now at the top of the agenda and where emerging minerals go hand in glove with changing needs.
In relation to the more historic oil and gas related area of business the picture is looking brighter at last, although at present, budgets playing out are those that were set last year during covid.
Although Copus says that nobody is expecting there to be a sudden loosening of the purse strings, equally, he feels that there should now be a progressively more constructive environment as we move through this year and they are now seeing evidence of that.
Having now raised a substantial sum of money to push the business forward I have to enquire about the Leeds freehold property Kitson House, which is a disposable asset.
The CEO says that the market for that kind of property in Leeds hasn’t been particularly good and given that they aren’t forced sellers, there has been little activity to date. “We own that and it’s been a good home although we only use about half of it at present, I really see it as lazy capital so we would like to move the Leeds team into some other smaller rented space”.
Copus confirms that the property remains on the market and that he is keen to dispose of it for the benefit of shareholders but that buyers for that sort of property have largely been out of the market post Brexit and then with the onset of covid.
With Kitson House for now on the back burner, I speak with soon to be Chairman Richard Bennett, who I am familiar with from his presence at MTI Wireless Edge where I am invested.
Bennet is highly familiar with the renewable space and says that he sees Getech’s current transition as very much similar to the journey of MTI and it’s moving forward with the Motech arm and an evolving of the wider business on the back of a reliable cash generator.
He certainly sounds excited about the prospects at GTC and being involved in the potential that is emerging and which could deliver growth that could really transform the position of the company and thus shareholder fortunes.
One thing that doesn’t look destined for change anytime soon however is the name, which Copus confirms will remain despite the H2 Green purchase and other ongoing developments.
No doubt some will understandably remain on the sidelines for now, but with as yet unnamed Institutions on board with the placing and further news looking likely, then the current share price may in time prove to be a good entry point.