ASX small-cap shares can be some of the most exciting businesses to own because of the growth trajectory that they have. LGI Ltd (ASX: LGI) is one name Australian investors can get excited about.
LGI describes itself as a renewable energy and carbon abatement company. It operates across a number of areas including landfill biogas, solar and battery storage (BESS). It says it uses a proprietary asset control system to optimise returns across energy and carbon markets.
There are a number of investment professionals who think the business is a buy, including the investment team in charge of the listed investment company (LIC) WAM Research Ltd (ASX: WAX).
WAM Research aims to find the most compelling undervalued growth opportunities on the ASX share market, with LGI being picked as one of those opportunities.
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What's the recent driver of LGI?
The LGI share price rose by an impressive 38% in October, which is a huge increase for just one month.
WAM Research noted that the business acquired two operational solar farms in Queensland for $22 million.
The investment team of the LIC highlighted that the Chinchilla and Brigalow solar farms provide a combined export capacity of 42MW and are expected to contribute between $2.1 million and $4 million in annual EBITDA (operating profit) at current electricity prices.
WAM said that the acquisition accelerates LGI's strategy to diversify beyond landfill gas and expand its medium-term renewable energy platform to approximately 125MW across biogas generation, solar generation and battery storage.
The company noted that the purchase price is below greenfield development cost for similar assets, with land lease life remaining for both assets of over 30 years.
LGI also said that the addition of battery energy storage system hybridisation could achieve even further enhancements to earnings.
The acquisition will be funded through a combination of available cash and its existing debt facility. The company said it's targeting net debt to EBITDA ratio below 2x throughout the remaining portfolio build-out to 120MW.
The LIC concluded its thoughts on the ASX small-cap share with the following:
The WAM Research investment team remain positive about LGI's medium-term growth outlook given its significant development pipeline and ability to leverage its existing operating capabilities across an increasingly diversified portfolio of renewable energy assets.
How much could the ASX small-cap share rise?
Analysts are always on the lookout for opportunities, and they issue a price target as one of the ways to express how undervalued (or overvalued) they think a business is.
If the price target is significantly above the share price, it implies there could be significant gains in the next 12 months.
According to CMC Invest, there have been four analyst ratings on the business in the last three months, with all of them being buys. The average price target is $3.83, implying a possible rise of 53% in the year ahead. I think it seems like of the stocks to keep an eye on.
