Getting under the bonnet of clean energy specialist Camco

Camco International (LON:CAO) describes itself as an emissions to energy project developer.
Yet this barely scratches the surface of what it actually does.
The group, which is listed on AIM, has so many moving parts it is difficult to put a proper label on it.

It is at the cutting edge of carbon emissions and carbon project development, but is also a project manager and has a world recognised green consultancy.

And it is this seeming complexity that appears to have so foxed investors that they have missed some fairly obvious value triggers.
The business is split into three distinct units.
The first and biggest is the carbon division. It works with power generators and large industrial companies reduce their emissions of the greenhouse gas, often to meet regulatory requirements such as the United Nation’s Kyoto Protocol.
But instead of managing these projects for so-called “compliance buyers”, Camco will develop them “at risk”. This means working with the project owners and sharing the profits in much the same way a traditional property developer might.
It will then earn its payback from revenues generated by the scheme, or bank valuable carbon credits.
The carbon business has a second leg: one that creates and commercialises carbon credits. Please don’t confuse this with trading carbon credits.
It actually makes the products the dealers buy and sell and it does so for its clients – those so-called “compliance buyers”. The market for carbon credits might be in its infancy, but Camco’s capabilities in this area are advanced.
Away from carbon emissions, the group also invests in clean energy projects from agricultural methane in the US to industrial energy efficiency in south-east Asia.
Here it doesn’t risk balance sheet equity, but has capital available to invest.
In the US it has a US$30 million draw-down facility with a specialist energy fund. And in South East Asia it has US$30 million available from a joint venture with the sovereign wealth fund of Malaysia.
It is only involved in activities it understands intimately, which means its developments are very similar to each other.
The value of this part of the Camco business should have been underlined by a joint venture deal the company struck with the Malaysian sovereign wealth fund - Khazanah Nasional - which will see the model rolled out locally and regionally.
An initial spike in the share price suggested the market had picked up on the importance of the joint venture.
Unfortunately the stock has since given up most of those gains. We will discuss this in detail later in this piece.
Finally, Camco has a profitable energy and carbon advisory operation that also helps the company understand and shape the regulatory environment in which it works. Clients include governments in Africa, the EU and China.
Having considered the various working parts of the business it is worth looking at just how it is valued and perhaps what the market might have missed in the blur of all that information.
With around £16 million of cash on the balance sheet, Camco has an enterprise value of just £10 million, or just over two times EBITDA.
However even that doesn’t really tell the full story here.
Take for instance the tie-up with Khazanah Nasional, which KBC Peel Hunt, conservatively values at £7.7 million, but says could be worth £15 million.
Then there are 15 million unsold carbon credits bought for about 8 euros per credits and currently trading at 13.75  and another 15.5 million on which it will receive a 15-30 per cent revenue share when they are sold.
Peel Hunt analyst Andrew Shepherd-Barron reckons the fair value of the company is £50 million or 28 pence a share.
In a research note focusing on the Malaysia deal, he said: “Camco’s partnership with the government’s investment arm crystallises significant value and gives transformational credibility to CAO’s strategy of building a broader long-term business.
“The shares trade at a 50 per cent discount to our revised fair value, and this is unwarranted.”