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Can Redt Energy PLC hit 20p before the end of the year?

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

Shares in Redt Energy (LSE: RED) jumped by more than 5% in early deals this morning after the company announced that it has sold a Gen 2 energy storage system to South African energy company Jabil Inala.

According to today’s press release on the matter, the unit will be provided by Jabil Inala to an unnamed African telecommunications company. Unfortunately, no financial details on the sale were provided. However, in this case, the financials are not overly important as it’s more about the proven demand for Redt’s products. 

Indeed, this is the second significant transaction for the company in as many months. Last month the company announced that it had delivered four of its 15 kilowatt-240 kilowatt-hour energy storage machines to the Scottish Isle of Gigha.

And these deals have propelled the company’s shares higher by around 70% since the beginning of September. If the company continues to issue such positive news, there’s reason to believe shares in Redt could surge to a new 52-week high of 20p. 

Positive newsflow drives growth 

The newsflow from Redt over the past few months has only reinforced the investment case for the company. You see, Redt’s mission is to design, build and sell long-duration energy storage machines, which will revolutionise the renewable energy industry. Renewable energy is big business, but storing energy generated from renewable sources is still a developing market. Redt hopes to change that, and the company is heading in the right direction. 

While the company is still in its early stages, management is planning to ramp up the firm’s production of its liquid vanadium energy storage units over the next two years. As Redt develops its manufacturing capacity, the cost of production per unit is expected to decrease considerably. Meanwhile, sales should expand as Redt develops, refines and markets its technology. 

According to management, there’s already plenty of interest in the units from industrial groups, a statement that has been justified by recent sales, and City analysts expect big things over next two years. Sales of £5m are expected this year (up from £4m at the beginning of 2016) and for 2017 analysts have pencilled in sales of £16.1m — a staggering growth rate of over 220%. The City expects Redt’s pre-tax loss to narrow significantly over the next two years, falling to £2.3m for 2017 with a profit expected in the years after.

Still, while Redt’s grow projections may be tempting, as with all early stage growth companies there are plenty of risks ahead for investors. For example, at 30 June 2016, the Group held cash and cash equivalents of €5.5m, of which €4.3m was proceeds from the issue of share capital. The cash outflow from operating activities for the period was €3.6m. These figures imply that unless, Redt sees a sudden inflow of cash from sales over the next few months, the company might have to tap shareholders for funds again while it ramps up production. 

The bottom line 

All in all, Redt is heading in the right direction, but the company needs more sales to prove to investors that it can stand on its own two feet. If the firm continues to record sales deals as it has done in the past two months, a new 52-week high of 20p is not unrealistic. 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.