Equity Firm Focused on Carbon Projects Gains Big Investor

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Key Carbon and Marex Group Plc. (MRX:NASDAQ) closed a US$15 million ($15M) carbon financing and investment transaction, as announced in a news release.

"This latest partnership is a powerful endorsement of our approach to investing in the voluntary carbon market and demonstrates our ongoing ability to attract meaningful funding in a challenging market through our robust approach to sourcing and governance," Key Carbon Cofounder and Chief Executive Officer Luke Leslie said in the release. "Partnerships like this will be critical to accelerating climate action and delivering tangible benefits to vulnerable communities."

A private company based in British Columbia, Key Carbon is a capital vehicle that finances and supports developers of superior-quality carbon projects, according to the release. The company is building a large, diversified portfolio of high-integrity carbon credit streams and royalties.

Marex, headquartered in London, England and with 35 offices around the world, is a financial services platform providing liquidity, market access and infrastructure services to clients in the energy, commodities and financial markets. In 2023 alone, Marex executed about 129 million (129M) trades and cleared 856M contracts.

Benefits of the Arrangement

The US$15M Key Carbon-Marex arrangement has two components. One, Marex invests US$5M in Key Carbon for a 2% interest; Key Carbon issues 1,224,349 of its shares to Marex at CA$5.50 apiece.

At this share price, the post-money valuation of Key Carbon is CA$337M, or US$250M. Notably, this is more than 100% higher than it was at the company's previous equity financing in April 2022 (CA$2.70 per share).

Two, Marex invests the remaining US$10M in a Key Carbon subsidiary, a nondilutive financing to Key Carbon shareholders. The subsidiary, in a 50/50 joint venture with modern cookstove manufacturer Burn Manufacturing, will use these funds to finance the production and distribution of new, low-emission cookstoves in various African countries via cookstove project developer Global Cookstoves Ltd. Of the credits these projects generate, Key Carbon will be entitled to receive 10%.

"We're really excited because we see a fundamental underlying demand," Leslie told Streetwise Reports. "We see some very large buyers coming in, some who are looking to buy cookstoves directly to create their own carbon projects, or they're going to the best-in-breed developers like Global Cookstoves, our JV with Burn. As crediting gets tighter, projects only work with the most efficient stoves, which are the Burn stoves."

Before this deal, Key Carbon and Burn were already partners.

"We constitute  the majority of Burn's carbon funding and we are important partners in the VCM, Leslie said. "Money is choosing to come through our JV because you have the governance, you've got the structures, you've got downside protection, and we have the right to repeat. It is an investable product and we have shown it is attractive to a diverse set of sophisticated investors. We've got US$600M worth of rights in our JV with Burn to repeat the investments on the same terms. That right becomes increasingly attractive in a market where the carbon price is rising."

For Marex, the partnership with Key Carbon allows it to further diversify its emissions offering and gives it access to additional prospective clients in the form of a new range of market participants, Marex Head of Environmental Bastien Declercq said in the release.

"Reliable access to trustworthy sources of carbon credits has held the market back in the last few years," Declercq added. "By moving up the value chain, we can play a more relevant role for our clients in helping them to transition to a greener future."

Catalysts for Key Carbon

Leslie told Streetwise about three significant upcoming developments. They are:

1) The launch of another special purpose vehicle, or SPV, already fully funded, to finance Burn-manufactured electric cookstoves.

"Every time we roll out one of the vehicles, it's increasing the number of projects, the diversification of the portfolio, as well as confidence and our position in the VCM," Leslie said.

2) The finalization of another partnership, this one with EKI Energy Services Ltd., a global carbon credit developer and supplier.

3) One or more acquisitions of other select companies in the space, such as distributors or carbon accounting firms.

"We're growing quickly in a soft market," the CEO said. "We'll keep executing on our unique strategy. Then, when inevitably the carbon markets turn, we're going to  be in a very strong position."

Streetwise reached out to Key Carbon investor and Global Analyst Adrian Day to ask him why he found the private company compelling.

He said, "Key Carbon is continuing to demonstrate a strong growth trajectory, even as the stock remains private amid weak public markets. The company is better, however, putting it in a very strong position against peers for a time when carbon becomes attractive again to public markets."

It seems Marex is hoping to capitalize on his "strong position." 

Marex "Well Positioned"

According to Marex, the company is well-positioned in this growing market on its own. The company reported that it has around a 2% share of the current addressable market, which it believes will give it a lot of room for further growth.

It has been raising its adjusted operating profit since 2014, with a CAGR of 34%. It has raised its active clients from 2000 to 4000 between 2018 and 2023. Its revenue from its top ten clients grew at a CAGR of 25% from 2018 to 2023, and its number of clients grew at a CAGR of 40% between the same dates. 

Since this deal with Key Carbon, Marex has also announced the finalization of its acquisition of Spanish biofuel company Droplet, and reported it had moved further into the Middle East with a new agreement to acquire Arana Capital Limited.  

Marex is covered by seven analysts. According to Refinitiv, the average recommendation from all the analysts covering Marex (on a standardized 5-point scale) was a Buy.

Marex Ownership and Share Structure

Regarding ownership, according to Refinitiv, 7.50% of Marex's stock is held by management and insiders.

56.09% is with strategic investors. Of these investors, the top three are Amphitryon Ltd. with 40.46% or 30.89M shares, Ocean Ring Jersey Co. Ltd. with 15.63% or 11.93M shares and Marex Group CEO Ian Lowitt with 3.61% or 2.75M shares.

As for institutional ownership, 73 companies own a total of 23.3% or 17.79M shares. The top three are Intertrust Employee Benefit Trustee Ltd. with 2.64% or 4.1M shares, Capital International Investors with 1.96% or 1.5M shares, and Capital Research Global Investors with 1.96% or 1.5M shares.

Retail investors have the remaining 19.11% of Marex.

Structurally, the company has 76.35M outstanding shares and 27.8M free float traded shares.

Its market cap is US$1.8 billion. Its 52-week range is US$18.13−26.03 per share.