Volvo’s announcement that it is opening a production line for engines incorporating the Dual-Fuel technology developed by Clean Air Power (CAP) provides additional credibility for the technology. This will help CAP to enter the US market, which has significant growth prospects.
So far, the Dual-Fuel technology, which combines diesel and gas, has been retrofitted to Volvo engines, but Volvo will begin full scale production of engines using the technology during the fourth quarter of 2011. It is anticipated that 100 trucks incorporating the technology will be sold during the first twelve month period. House broker Seymour Pierce estimates that CAP, which supplies software, gas injectors and other parts for each engine, will receive £19,000 per truck.
In the UK, a typical truck operator can save around £15,000 per year by retrofitting the Dual-Fuel technology, which represents a payback on investment of less than two years.
CAP has a concept development agreement with Navistar in the US, where interest is increasing in gas power vehicles owing to the abundance and low price of gas in the country. By contrast, significant amounts of oil have to be imported to the US, leading to concerns about fuel security.
CAP has raised £1.5 million at 7p a share in order to finance working capital. Although CAP still needs to invest in product development, the company’s plan is for its partners to cover most of the development costs.
The Volvo deal will help CAP to move towards profitability. The cash raised should last until 2013, by when Seymour Pierce forecasts a small operating profit.
Market: AIM
Symbol: CAP
Price: 6.25p
Market cap: £5.94m
High/low: 16.5p/5p
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