Australia | Aug 02 2012
– Silex Systems offers a range of technologies
– Most valuable is uranium enrichment technology
– Solar power technology continues to progress
– Bell Potter initiates coverage with a Buy rating
By Chris Shaw
Silex Systems ((SLX)) is a technology company with three main development streams – uranium enrichment, lower cost solar power and advanced materials development. This puts the company firmly in the 'clean tech' segment of the market, which offers benefits from the ongoing trend towards policy initiatives designed to create a greener economy.
Bell Potter has initiated coverage on Silex with a Buy rating, attracted by the fact commercial revenues are getting closer and prospects for the nuclear power industry appear to be improving post Fukushima-related issues.
The uranium market is an important one for Silex given its SILEX Technology, which is a low-cost technique for enriching uranium, accounts for most of Bell Potter's valuation of the business. Favourable safety and environmental impact reports lead Bell Potter to suggest US Nuclear Regulatory Commission approval for a full scale uranium enrichment plant is likely this month.
This would mean the GLE consortium of General Electric, Hitachi and Cameco could begin commercial production of enriched uranium in FY16. Bell Potter estimates enriched uranium is currently a US$6 billion market, growing to US$22 billion by around 2022.
What sets Silex up well to play a major role in the enrichment market is the SILEX technology, which represents a new generation enrichment technique. The process involved the use of CO2 lasers to irradiate material in a process Bell Potter suggests could be as much as 20 times more efficient than current technologies.
The GE-led consortium is commercialising the SILEX Technology, with Silex Systems to receive royalties. Bell Potter's base case assumptions assume an 85% chance of success for GE's project and a 7% royalty for Silex, while optimistic case assumptions assume a 100% chance of success and a 12% royalty to the company.
Silex also operates in the solar power sector thanks to its Concentrating Photovoltaic (CPV) technology, which is based on producing electricity via semiconductors that create electric current through exposure to solar radiation.
Bell Potter notes Silex's CS500 CPV cells offer among the highest conversion efficiency rates available in the world. The technology continues to be optimised, leaving Bell Potter confident Silex can eventually generate solar power at costs competitive with more traditional forms of electricity generation.
A pilot facility in Mildura is being used to develop the technology and assuming progress continues to be made, Bell Potter expects Silex will look to build capacity of 100MW at the site in coming years. Shareholder value would be created though the establishment of utility-scale solar power generation facilities.
Silex's third technology is centred on Translucent Inc, puts layers of material such as germanium and gallium on silicon chips. The translucent chips created have applications in both the LED and power electronic sectors.
Under Bell Potter's base case assumptions Silex is valued at $4.96, rising to $10.26 using more optimistic assumptions. The broker has set its price target around the mid point of these valuations at $7.50.
The main driver of a re-rating to this target price in Bell Potter's will be the uranium enrichment technology, especially given the potential for an re-rating on any announcement this month on approval for a full scale enrichment plant.
Others in the market agree, as both RBS Australia and JP Morgan rate Silex Systems as a Buy. While JP Morgan has not updated its view on the stock since Silex posted interim earnings in February, RBS last month reiterated its view the stock offers upside from good news on the enrichment plant. RBS has a price target on Silex of $6.63.
In a slightly stronger market shares in Silex today are higher, trading up 13c at $3.92 as at 1.00pm. Over the past year Silex has traded in a range of $1.80 to $4.52.
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