The Best Pure Play Carbon Capture Stock
If you’re looking for a carbon capture stock, you might pitch your tent in one of two camps. The first camp believes that reducing carbon will save the planet, and therefore we must pursue this mission at all costs, profits be damned. The second camp believes that because so much money is being thrown at solutions to reduce carbon, you can’t help but make money by investing in carbon capture technologies. But here’s something both camps need to consider.
You will not be able to capture carbon at scale, and at a sustainable rate, unless you can do so profitably. The amount of carbon that needs to be reduced is so massive that such a lofty goal will only be accomplished if the end solution can generate a profit for investors. The alternative is to subsidize carbon capture, but that’s not going to scale, nor will it show green tech investors a return on their investment. We’re looking for an enterprise that can profitably capture carbon and show us a worthwhile ROI. It’s easier said than done.
The Business of Capturing Carbon
A few years ago we asked the question, How Can We Reduce Carbon Dioxide in the Atmosphere? In that article, we looked at a company called Climeworks which was removing carbon for $100-per-ton and selling it for $26 a ton. That’s hardly an economically viable business. Capturing carbon and then turning it into products isn’t a novel idea. Companies are trying to turn carbon into chemicals, plastics, and even food, but these businesses will only scale if they can operate profitably. Earlier this year, we wrote a piece titled When Will Carbon Capture Tech Become Economically Viable? in which we looked at even more startups trying to make carbon capture profitable. But when the world’s richest man offers a $100 million prize for the best carbon capture technology, it implies what we have today isn’t up to snuff.
Because it’s early days for carbon capture technology, there are not very many publicly traded carbon capture stocks. In fact, we’ve never come across any. That’s why we were quite surprised when a reader told us about Aker Carbon Capture, a publicly traded carbon capture stock that’s listed in the United States as an ADR under the ticker AKCCF, and on the Oslo Stock Exchange under the ticker ACC.OL.
About Aker ASA Stock
Researching foreign stocks is both a blessing and a curse. On one hand, you can find undervalued gems that are flying under the radar. On the other hand, you’ll often need to sift through convoluted filing documents written in obscure languages while doing currency translations every seven seconds to try and understand the financial picture. In the case of Aker Carbon Capture, the story starts with a much larger company – Aker ASA. They’re a $7.5 billion holding company that trades in Norway which consists of a slew of energy-related assets. The company’s annual report details these holdings, along with some slick lingo to add to your corporate vocabulary, like “one swallow does not make a summer.” In that report, we found the below statement:
This summer marks one year since Aker’s entry into the renewable energy space with the establishment of Aker Offshore Wind, Aker Carbon Capture and Aker Horizons.Credit: Aker ASA Annual Report
Aker Carbon Capture may be an independently traded company, but they come to the table with lots of industry contacts they can leverage to make things happen. Their Norwegian pedigree means they’re coming from a place that’s extremely environmentally aware, and more importantly, flush with oil cash that’s being put to good use.
Norway’s Sovereign Wealth Fund
The “curse of oil” seen in places like Azerbaijan and Saudi Arabia was never a problem for Norway. Norway’s sovereign wealth fund, which holds the world’s biggest stock portfolio, is the largest sovereign wealth fund controlled by a country on behalf of its citizens. Does $91 billion sound like a big number? That’s just how much Norway’s fund earned in 2020. With assets totaling $1.3 trillion, the 5.3 million inhabitants of Norway own about a 1.4% stake in all the world’s public listed companies. When the fund announced this year that they plan to allocate 2% of the fund (about $28 billion) to renewable energy investments, that bodes well for Aker Horizons, a renewable energy holding company that Aker ASA is invested in.
About Aker Horizons Stock
If you’re starting to get confused with all the mentions of Aker, don’t worry. So are we. Maybe some visuals will help paint a better picture of what’s happening. First, we have the top-level holding company, Aker ASA, which holds majority ownership in another company called Aker Horizons (a renewable energy holding company) seen below in yellow highlight.
So, Aker ASA owns around 80% of Aker Horizons, a position that doubled in value over the past 15 months and is currently valued at $1.6 billion. As it turns out, Aker Horizons is also a holding company which consists of the below assets:
So, let’s recap. Aker ASA holds 80% ownership in Aker Horizons which holds 51% ownership in Aker Carbon Capture, the company this article is about, which we’re just now getting around to talking about. (Rolls eyes.)
About Aker Carbon Capture Stock
Earlier we talked about how Aker ASA said they had only established Aker Carbon Capture “last summer.” That refers to the entity, but not the underlying technology. In a recent press release announcing their “carbon-capture-as-a-service” offering, Aker Carbon Capture cites their “more than 20 years of technology development and operational experience.” Before we get into talking about Aker Carbon Capture’s product offering, you’ll need to drink the Kool-Aid first. Here, try some, it’s delicious.
Jokes aside, the idea here is that while today carbon capture and storage (CCS) might not be economically viable, very soon it will be, because the price of capturing carbon is going up, and the cost of capturing it is going down. (Of course, this implies that someone is footing the bill to capture the carbon, presumably he who produces it, and he who then passes that cost on to the consumer in the form of increased prices.) And that’s what Aker Carbon Capture is doing right now. They’re ramping up for when that happens with a variety of product offerings.
How Aker Captures Carbon
Simply put, Aker’s carbon capture process uses a mixture of water and organic amine solvents to absorb the CO2. The process can be applied on emissions from various sources, from gas, cement, refineries, and waste-to-energy through to hydrogen and other process industries. We’ll show you this slick-looking diagram which excuses us from having to expound any further on the technical details.
You can capture carbon until the cows come home, but you need to find someone to pay you to do it. And Aker Carbon Capture has, having been awarded the “first carbon capture project at a cement facility in the world.” The project with HeidelbergCement (one of the largest building materials companies in the world) commenced in January 2021. From the horse’s mouth, dated 15 December, 2020:
Yesterday the Norwegian parliament approved the investment in a full-scale carbon capture facility at the HeidelbergCement Norcem plant in Brevik, Norway. The Brevik carbon capture and storage (CCS) project will enable the capture of 400,000 tonnes of CO2 per year and the transportation for permanent storage, making it the first industrial-scale CCS project at a cement production plant in the world. Work on the new facility in Brevik is expected to begin immediately, with the goal of starting CO2 separation from the cement production process by 2024. The end result will be a 50% cut of emissions from the cement produced at the plant.Credit: HeidelbergCement
Key milestones have been achieved according to plan, and evidence of that can be found in the $15.13 million in revenues recognized by Aker Carbon Capture during the first half of this year. Now, we’ll just need to wait three years before product-market fit is demonstrated at a commercial scale.
Aker Carbon Capture’s latest half-year report goes on to talk about how they’ve signed five collaborative agreements and half a dozen memorandums of understanding (MOUs) with big names like Orsted, Microsoft, and Siemens. As we’ve said before, an MOU and $10 won’t buy you a cup of coffee in a Norwegian Circle K. (That’s not just because MOUs are worthless, it’s because Norway is one of the most expensive countries on this planet.)
To Buy or Not to Buy
You probably noticed the title of this article refers to “the best pure play carbon capture stock.” We’re kind of taking the piss when we say that, because Aker Carbon Capture is the only publicly traded carbon capture company we’re aware of with a market cap greater than $1 billion. In fact, we’re not aware of any with a market cap less than a billion dollars either. There just aren’t any publicly traded carbon capture stocks out there because the technology is so new. Beggars can’t be choosers, so the only carbon capture stock also happens to be the best carbon capture stock, but that doesn’t mean we’re going to invest in it.
We probably would have dismissed Aker Carbon Capture and their never-ending mention of MOUs and promises were it not for the caliber of people they associate with, and the fact that meaningful revenues are now trickling in. If there were ever to be a profitable carbon capture model, it would require a great deal of financial backing and support from industry, both of which Aker Carbon Capture has in spades. If the company is paid more for capturing carbon than it costs to capture, then who cares who is subsidizing the business model. If there’s a profitable business that can scale, we’re interested in having a look.
The biggest problem we see right now is a company that hasn’t demonstrated product-market fit, yet commands a pretty penny. Sure, for the first half of 2021 they managed about $15.13 million in revenues, but we need to see more of a track record than that (2020 revenues came in at about $1.79 million). Using our simple valuation ratio, we’re just paying too much for future growth.
- $1.28 billion / 0.0288 = 44
We don’t invest in companies with a simple valuation ratio over 40, no matter how great the growth story is. Even if the ratio halved, we wouldn’t invest in Aker Carbon Capture until they show us a track record of meaningful revenues that proves their solution is economically viable.
Aker Carbon Capture appears on the right track to launch a sustainable carbon capture business that’s profitable, but it’s still early days. Perhaps what’s most compelling about the firm is the company they keep. Having lots of industry connections and residing in an ESG-focused country with $1.3 trillion to invest isn’t a bad place to be. If there’s a good business to be had in carbon capture, Aker’s probably a decent company to bet on. The question is, how long will you need to wait for the payoff?
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