Editing DGI plc

In 2013, DGI PLC commenced its energy storage research activities. In 2018, the Company began to develop its fully-recyclable, sodium-ion (Na-ion) batteries using anode active materials as a key enabling technology. With grant support from Innovate UK, the company completed installation of a pilot scale pouch cell production line in early 2021, which will allow the manufacture of large format cells in commercially relevant packaging.

DGI PLC is currently developing a range of products alongside partners including major transportation and energy companies, research institutions and the UK's Ministry of Defence. These products, which are nearing field trials and commercial deployment, include a range of novel electric motors, generators and advanced control systems, as well as materials for supercapacitor and battery systems.  

DGI PLC is developing ultra-high efficiency, compact, high reliability, cost-effective electric motors and electronics which have applications across a range of markets. In this business segment, the company has focused on developing electric drive systems which aim to deliver improved range over existing technology, based on the same battery capacity, by reducing energy losses and improving efficiency.  

To get an idea of the potential of the company’s technology it’s good to have a basic understanding of how electric vehicles (EVs) work. Put simply, an electric vehicle is powered by an electric powertrain. They are used instead of the internal combustion engines (ICEs) seen in liquid fuel powered vehicles. The powertrain contains the set of components that generate the power required to move the vehicle. It contains a number of key parts including the battery, which stores the energy needed to run the vehicle, power-electronics, software and electric motor. The power-electronics in an EV (the inverter), is a device that converts DC power from the battery to the AC power used by the motor. The inverter can change the torque and speed at which the motor operates by continually adjusting the magnitude and frequency of the alternating current.  

DGI’s focus has been upon addressing one of the main challenges in electric mobility; the range that EVs can travel before the battery needs to be recharged. As well as battery capacity, range is determined by powertrain efficiency. DGI has concentrated on improving both these fundamental factors.

EDT is a platform technology based on novel motor and power electronics’ architecture. Its key differentiators aim to reduce copper losses in the motor and improve reliability. The term copper losses refers to the energy dissipated (and therefore lost) by resistance in the copper wire used to wind a motor coil. EDT achieves a reduction of copper loss via a number of innovations including a novel shortening of the length of copper coil wire in the motor; multiple parallel power electronics architecture; changing or duplicating the location of the permanent magnet; and elimination of the need for permanent magnets by novel magnetic circuit design.  

Overall, a key benefit of EDT is increased energy efficiency in an electric vehicle. This was demonstrated in recent simulation which predicted that the system increases the range of a passenger EV by up to 25% from the same battery pack, depending upon the drive cycle the vehicle travelled.  

EDT is currently at a Technology Readiness Level (TRL) of 4. This is an Industry-Standard ranking system used to assess the maturity level of a particular technology, with level 4 suggesting indicating a prototype has been demonstrated in a test or operational environment, with performance demonstrating the viability of the technology.  

With internal product testing at an advanced stage and external client testing expected within 2022. Some of these projects include:  

According to the International Energy Agency, global sales of electric vehicles increased by 41% to c.3 million in 2020. It estimates that the number of EVs registered around the world will increase from c.10 million today to 145 million in 2030. Meanwhile, an October 2021 report from Fortune Business Insights is looking for the global electric vehicle market to grow from a value of $287.36 billion in 2021 to $1.312 trillion in 2028, growing at a CAGR of 24.3%.  

In a recent article published by the American Chemical Society, author K.M Abraham stated: “We can foresee Na-ion batteries with hard-carbon anodes and cobalt-free cathodes as sustainable lower-cost alternatives to Li-ion batteries for applications such as short-range electric vehicles and large-scale energy storage (ESS) in a world that is increasingly being transformed to wind, solar, and hydroelectric power, which depend on battery energy storage for uninterrupted, around-the-clock, performance.” Source: ACS Energy Lett. 2020, 5, 11, 3544–3547. Publication Date: October 23, 2020 <nowiki>https://doi.org/10.1021/acsenergylett.0c02181</nowiki>  

Based on its underlying materials development work DGI PLC has a core anode technology, used as a key enabling technology for sodium-ion batteries. Along with partners including the University of Southampton it has developed a high energy density anode material – an anode is the positive electrode in a battery through which a positive current of electricity flows, with the cathode being the opposite negative electrode.  

This research also provides advances in high-energy density capacitors (devices that store electrical energy physically in an electric field as opposed to chemically in a battery) and high-capacity sodium cells. These advances are also being incorporated into hybrid energy storage systems (HESS) aimed at combining higher power and energy density along with improved cyclability over current battery technology. EBT is currently at a Technology Readiness Level 3/4, implying that design rules have been established and lab based performance results demonstrate the viability of the technology.  

In terms of initial target markets for EBT, sodium-ion is currently regarded as more suitable for stationary energy storage, for example from solar and wind energy production, given the increased weight of sodium over lithium – sodium’s atomic weight is more than three times higher than lithium. Here, DGI PLC believes its technology can offer cost, safety and environmental benefits over lithium.  

DGI PLC continues to seek to increase the performance of its cells through its ongoing materials research. To that end, it completed the building of a pilot scale pouch cell production line in early 2021 to allow the manufacture of A5 size cells for testing. During 2022 it intends to lease a second facility to provide additional space for its manufacturing and integration work. The company has stated that it is in collaboration and commercial contact with several companies throughout the supply chain with the view towards volume commercialisation in the medium-term.

While DGI PLC’s focus is currently on the commercialisation of the EDT and EBT offerings discussed above, it also has a wider portfolio of technologies which it believes could also be monetised in the medium to longer term. These include novel supercapacitors, polymer film capacitors, advanced stabilised ring drives for marine applications, suspension systems and vacuum system enhancements.

In addition to the market information presented above it is important to understand the wider social and political environment in which DGI PLC operates and which creates huge opportunities for its technologies.  

Further, July 2021’s Transport Decarbonisation plan set out the details of decarbonising the entire transport system in the UK, with initiatives including stopping the sale of new petrol and diesel cars and vans by 2030 and removing all diesel-only trains from the network by 2040. Around the world, over 20 countries, along with a number of provincial and state governments, have set time frames for phasing out sales of new internal combustion engine cars, or only allowing new sales to be electric.  

In the EDT segment, DGI PLC is addressing the electric powertrain market. Components within this include the likes of the motor/generator, battery, power electronics controller, converter, transmission, and onboard charger. According to a July 2021 report from Grand View Research, the global electric powertrain market was valued at $71.86 billion in 2020 and is expected to grow at a CAGR of 33.5% from 2021 to 2028. The includes battery electric vehicles (BEV) and hybrid and plugin hybrid electric vehicles (HEV/PHEV).

Meanwhile in the EBT segment, a February 2021 report from Global Market Insights valued the stationary storage battery market at $23 billion in 2020 and is looking for it to grow at a CAGR of 25.1% from 2021 to 2030 to reach a value of $140 billion. This is being driven by investment in sustainable energy sources such as solar and wind and the need for efficient energy storage systems. Minerals consultancy Adamas Intelligence meanwhile believes that sodium-ion could capture a 15% share of the global battery market by 2035, driven by scarcity of materials including lithium and cobalt

Following the reverse takeover and associated fund raising DGI PLC finds itself in a strong position to move its two key areas of focus towards product commercialisation. Some of the funding proceeds, estimated at £0.3 million - £0.6 million per annum, will be spent on strengthening the management and commercial teams. This will have the added advantage of allowing founder Martin Boughtwood to focus on product development in his new role of Chief Technical Officer.  

==Team==

Mr Tulloch has advised companies on the UK capital markets for over 20 years, working for several well known investment banks and stockbrokers, including Cazenove, Arbuthnot, Cenkos and Cantor Fitzgerald. With a particular focus on oil and gas, Mr Tulloch has worked on several cross-border transactions in many parts of the world. In 2019 he became finance director and then subsequently CEO of Zoetic International plc transforming the company from its oil and gas roots to become the first vertically integrated CBD company to be listed in London. Mr Tulloch began his career as a solicitor with Gouldens and he holds a master’s degree in law from Oxford University. Mr Tulloch stood for parliament in 2017.  

Mr Theis is an experienced investment banker and entrepreneur. He has led number one rated City teams, including Smith New Court and Hoare Govett in the origination, structuring, flotation and placement of secondary market transactions of numerous successful companies. Chris has also founded a number of successful quoted and private businesses. Mr Theis holds an MBA from City University Business School.  

Mr Allardyce has over 15 years’ experience in the energy sector, including 10 years as a leading equity research analyst with a number of UK investment banks. He began his career as a process engineer working on North Sea projects, before joining the leading research and consultancy house Wood Mackenzie, specialising in the European upstream industry. Mr Allardyce’s skillset spans global asset evaluation, financial forecasting, corporate advisory, M&A and equity capital markets. Mr Allardyce graduated from Heriot-Watt University with a degree in Chemical Engineering.  

Martin Boughtwood is the Founder and Managing Director of DGI PLC, an advanced research and development company focussing on the material science of energy storage and development of novel electric drive technologies. Martin Boughtwood is an inventor, with over 20 patents filed in the last 5 years. With his background in electronics, mechanical engineering and power management systems, and company leadership roles over 40 years, Martin Boughtwood focuses on the innovation of, sustainable, non-toxic solutions that leverage material property enhancements: improving energy efficiency for a host of applications across a plethora of potential end markets.  

Mr Symonds has had a 40+ year career in motorsport. He started his career designing championship winning cars for the lower formulae and then joined the fledgling Toleman F1 team working with Ayrton Senna. His subsequent partnerships with Michael Schumacher and Fernando Alonso produced 32 race wins, four Drivers’ World Championships and three Constructors’ World Championships. During this time he became Technical Director of the Benetton Formula One Team and latterly the Renault Formula One Team. After some years running his engineering consultancy, Neutrino Dynamics, he accepted an offer to become CTO at the Williams F1 team, a position he held until the end of the 2016 season. Mr Symonds is now Chief Technical Officer at F1 (Formula One Management) tasked with setting up a small technical group to assist the FIA in the formulation of future F1 and is involved in the transition of F1 to a low carbon economy. Mr Symonds is also a visiting professor at Cranfield University, a chartered engineer and a Fellow of both the Institution of Mechanical Engineers and the Royal Aeronautical Society.

Sir Stephen Dalton served for nearly 40 years having joined the Royal Air Force in 1976 after graduating with an honours degree in Aeronautical Engineering from Bath University. Sir Stephen was appointed Head of the Royal Air Force in 2009 and retired from the Royal Air Force in 2013. He has worked with a number of major international companies advising them on the development of strategy and international engagement. He has also worked with a number of Company Boards helping them to improve their collective performance at Board level. Sir Stephen Dalton was sworn into office as Lieutenant Governor of Jersey, in March 2017 at the start of his 5-year term of office and was President of The Royal Aeronautical Society for a one year fixed term position. He was appointed a Knight Commander of the Most Honourable Order of the Bath (KCB) in 2009 and advanced to Knight Grand Cross of the Order of the Bath (GCB) in 2012. In 2019, Her Majesty The Queen appointed him as Bath, King of Arms.  

Andrew Boughtwood is an experienced company director. For the last 17 years, he has been Managing Director of Megger Limited and overseas operations in over 30 countries. His is experienced across the electronic/electrical instrumentation field serving customers in communications, power contracting and utilities, industrial automation, power generation/ renewable energy, automotive, military and aerospace. Andrew Boughtwood is a graduate of Swansea University with a bachelor degree in computer technology. Andrew Boughtwood is the brother of Martin Boughtwood and a shareholder of DGI PLC.  

Mr Gabriel is managing partner of a real estate brokerage in Monaco, having previously been Finance Director of Camper & Nicholson International, the yacht brokerage firm. He is a chartered accountant and fellow of the ICAEW and spent 12 years with Jardine Matheson in finance and general management roles. He is currently non-executive director of TSX-V listed GlobalBlock Digital Asset Trading Limited and previously was a non-executive director of Kirkland Lake Gold Ltd while it was TSX listed and AIM quoted. Mr Gabriel is currently a shareholder of DGI PLC and previous director of DG Innovate.

==Financials==

As mentioned above, DGI remains in the R&D stage of its development, with income and funding having been uncertain and staggered during its existence. In the most recent financial year, to 31st March 2021, revenues grew to £285,000 from £192,000 with the operating loss reducing from £1.02 million to £337,000. Following other gains and losses amounting to £118,000 the pre-tax loss was £455,000 with additional tax credits resulting in a net loss of £403,000.  

Path’s most recent set of results covered trading in the six months to 30th June 2021. A net loss of £736,254 was posted for the period, with administration costs mainly relating to work on a potential acquisition that was aborted in February.  

==Risks==

While it has made significant progress to date, DGI PLC does not yet have an established track record or knowledge base of how its technologies will perform in real world environments. While they have advanced through a number of technology readiness levels and shown promising test results, there is no certainty that the technologies will perform at the same level once in mass production, or that they will not be rendered obsolete before they gain market traction. If these events occur, they may affect the ability of the company to earn income as expected from its current partners and projects.  

DGI PLC faces competition from a range of larger and smaller businesses across its two segments. As well as there being a number of smaller rivals in the electric drive train market, a number of electric vehicle OEMs design and manufacturer their own components in-house. In the battery industry, there are companies already involved in the manufacture of sodium-ion anodes. With both business segments seeing fast growth and being technologically driven, it can be expected that competition will intensify, with the potential for other parties developing novel technologies more advanced than DGI PLC’s own offerings.  

As a research and development business it is important for DGI PLC to protect and enforce its intellectual property rights in order to commercial success. While a number of patents have already been granted, the company may become involved in disputes with other parties who may have developed similar technologies. There is also no certainty that the outstanding patent applications will result in patents being granted.  

To date DGI PLC has been in research and development mode and relied on a range of methods to fund its operations, primarily grants. While revenues have been earned, the company remains loss making at this stage. Following the recent fund raising, there is expected to be sufficient working capital to undertake planned development work, to cover overheads and required capital expenditures, through to product commercialisation. However, until the company scales up to become cash flow positive it faces funding concerns. What’s more, in order to take advantage of further investment opportunities, or to pay for corporate costs, DGI PLC may undertake further equity funding raisings, which could be dilutive to shareholders.

==Valuation==

Given the early-stage nature of its operations, lack of current profits but significant future potential, Align Research considers that the best way to put a valuation on DGI PLC is via an appropriately risked discounted cash flow model. Working with management and considering wider industry sources Align Research has put together a DCF model with a four-year time horizon out to 2026. Align Research also adds a terminal value in order to establish an appropriate value for the shares of DGI PLC. Align Research's key assumptions are discussed below.  

As the company’s range of projects with various partners continues to progress, Align Research is expecting significant revenue growth from product sales over the time horizon of its forecast model. This is expected to be mainly driven by use of EDT by the UK Government and the related sales of electric motors and inverters and also revenues from the integration of the systems into the government vehicles. In 2025, Align Research is also expecting further EDT sales from the company’s relationship with the un-named Tier 1 supplier to the commercial vehicle sector.  

Given the earlier stage nature of the business segment, Align Research is expecting only minimal sales of sodium-ion batteries over the four-year forecast period but see significant longer term potential. Align Research also expects that product sales will be complemented by modest income from licences, royalties and grants.  

Align Research sees the business entering profitability in 2024, with profits then jumping significantly in 2025. This can be a highly profitable business, with the expectation that motor and inverter sales will deliver gross margins in the high 40% level once scale is achieved. Integration of the units meanwhile is expected to see margins in the mid to high 60% level. For the EDT sales to the Tier 1 commercial vehicle supplier, Align Research is looking at gross margins in the mid 30s. Overall, Align Research is expecting EBITDA margins to settle at 42% by the end of the forecast period. Align Research conservatively assumes that tax will begin to be paid in 2024 as the company becomes profitable although note that Path has c.£6.2 million of trading losses.

To calculate the free cash flow to the firm, Align Research makes various assumptions regarding capex, depreciation and amortisation and changes in working capital then factor them into the model.  

The findings of Align Research's DCF model are presented in the table below.

Align Research's DCF analysis shows that DGI PLC’s business model looks to be potentially highly profitable. Align Research sees the significant forecast scale up in product sales from 2025 leading to annual free cash flows almost approaching the value of the price that Path Investments paid for the business, within just three years. Align Research notes that a high proportion of the valuation comes from the terminal value NPV. But, as mentioned, Align Research believes that this is sensible given the long-term potential of the company’s technologies and forecast growth in its target markets. It could even be conservative given that Align Research has attributed minimal revenues to the EBT side of the business.  

As Align Research's valuation is highly sensitive to the discount factor and growth rate assumed in the model, below Align Research presents a matrix of valuations if those two factors are changed.

An analysis of DGI PLC’s peer group provides limited useful information for a comparable valuation using earnings multiples given that most companies within it (along with DG) remain loss making. However, to illustrate the kind of valuations currently being attributed to companies in the sector Align Research feels it is worth looking at some select companies and recent transactions within the wider electric vehicle and green energy storage industries.  

Align Research's peer analysis demonstrates that that while many companies in the industry remain loss making, investors are willing to put huge valuations on businesses which they see have significant growth potential. This is still the case once they start making consistent profits, with Tesla being a case in point being on a huge annualised PE multiple, as described above. Align Research notes that if DGI PLC meets its net income forecast for 2026 that on its valuation it will be on an earnings multiple of little over 2 times. For illustrative purposes only, applying Tesla’s multiple to Align Research's 2026 forecasts for DGI PLC implies a valuation of £5.42 billion. While that is more a reflection of the high valuation of Tesla, it does demonstrate what investors are willing to pay for access to growth stocks in the EV/alternative energy technology industries.  

DGI PLC has made significant progress to date on the development of its novel technologies. This has been reflected in the sizeable grant funding having been received, along with the company attracting a range of partners who are looking to apply its technologies to their own activities. Progress is being made in the context of a highly favourable political, social and financial environment for emissions reducing technologies, all of which set the scene nicely for growth in the coming years.