FTSE AIM All-Share Index stock Velocys (LON:VLS) is an innovative company utilising its technology for the good of the planet. It is doing this through the creation of sustainable fuels for aviation and heavy goods transport. The company listed on the London Stock Exchange in 2006 as Oxford Catalysts, but changed its name to Velocys in 2013. Being an offshoot of Oxford University gives it a degree of prestige and integrity. The Velocys share price has been on a bumpy ride, but speculation is rife and this may well prove to be a contrarian stock to buy.
Velocys share price turbulence
Oxford Catalysts was set up to create renewable fuel out of biomass and waste. It then acquired Velocys from a US department of energy research laboratory. Velocys had reactor technology conceived for space colonisation, which could be adapted and was exactly what Oxford Catalysts needed to bring its renewable fuel dream to market. In 2017, Velocys transitioned from being a tech company to focus on renewable fuels.Â
At its IPO, the Velocys share price enjoyed a trade high of £2.18 but it only briefly reached those dizzy heights again in early 2014. The company’s valuation is currently around £85m. It has a debt ratio of 25%, a negative price-to-earnings ratio, and no dividend yield.
The Velocys share price is up 275% year-to-date but has dropped 55% since its June high of 14.8p. These massive fluctuations both make and break investors, so it is not a stock for the faint of heart. That being said, I think VLS shows potential as an investment.
Promising environmental solutions
Emerging from lockdown and getting back to a sense of normality is what the world is striving for. Saving the planet in the process would be an added bonus. Reducing waste and carbon emissions are two of the world’s most sought-after solutions as climate change looms over policymakers everywhere. This puts the company in the enviable position of potentially solving not one but two major environmental problems.
Commercialising scientific breakthroughs is never easy, and there are many hurdles to overcome before turning a profit. However, a combination of climate change fear and the pandemic may provide the catalyst needed for the business to forge ahead and boost the Velocys share price.
Revenue streams
In June Velocys reported administrative costs had fallen, reducing its annual loss. It also confirmed British Airways owner IAG and Royal Dutch Shell had pledged £1m of funding for its Altalto waste-to-fuels project in Lincolnshire. At this facility it aims to produce enough fuel for 1,000 transatlantic flights a year and expects production to begin in 2025. Building the plant will probably cost between £350m and £500m.Â
Revenue for the year fell from £0.7m to £0.3m according to unaudited figures. It makes its money from a mixture of revenue streams including licensing its technology, supplying reactors, catalysts, and technical services. This month it completed the manufacture and delivery of four reactors to Red Rock Biofuels, in Oregon, with the option to purchase two more reactors by the end of the year.
Going by its track record and the current state of the aviation industry, this stock comes with significant risk. Nevertheless, its potential to solve major industry problems makes me think it is one to watch.