April 17, 2014

New Yingli Fund Evokes Shades Of Suntech

Doug Young

I wrote earlier this week about troublesome signs for the solar panel sector’s fledgling recovery after a revenue warning from Trina (NYSE: TSL), and now we’re seeing another worrisome signal with news that Yingli (NYSE: YGE) is launching a new fund to build solar power plants. This kind of scheme looks eerily similar to one that kicked off the downfall of former industry leader Suntech (NYSE: STPFQ), though there are also a few differences. Still, Yingli’s latest move signals that the industry may not have learned its lesson from the Suntech debacle.

Yingli’s decision to launch this new scheme also suggests that the hoped-for explosion of new solar plant construction in China isn’t coming as quickly as many had hoped, forcing panel makers to bridge the gap by helping to finance and build new projects. Most major players have used this kind of process before, building new plants using their own resources for eventual sale to long-term buyers.

But in most of those cases, probable buyers were already in place before plant construction began. This new plan by Yingli seems to depart from that model, and looks like it will involve the speculative construction of new solar plants first, and then identification of potential buyers later.

All that said, let’s look more closely at Yingli’s new scheme that has it teaming up with Chinese private equity firm Shanghai Sailing Capital to launch a renewable energy fund. (company announcement) The fund will initially have 1 billion yuan ($160 million) in capital, with Yingli holding a majority 51 percent and Sailing holding the remainder. Yingli will provide its roughly $80 million contribution in installments rather than immediately, reflecting the difficulty it faces in raising even this kind of modest amount of cash.

Not surprisingly, the fund will mostly build solar power plants in China using panels supplied by Yingli. If any industry watchers are getting a sense of deja vu after reading all this, it’s because the now-bankrupt Suntech did something quite similar back when it was still an industry leader.

In that instance, Suntech set up the Global Solar Fund (GSF), which became a major building of solar power plants, mostly in Italy. Like Yingli, Suntech was the controlling shareholder in GSF, and the fund used Suntech-supplied panels for most of its projects. That arrangement allowed Suntech to post billions of dollars in sales, even though others would later argue it was effectively selling its panels to itself.

Solar historians will know that Suntech ultimately had to publicly discuss its cozy relationship with GSF when the partnership soured over a financial issue. That disclosure, which came at the height of the solar sector’s recent downturn, set Suntech on a downward spiral that ultimately ended with its bankruptcy declaration last year and its current liquidation.

So, what, if anything, is different with this current Yingli scheme? From what I can see, the biggest difference is that the Yingli fund is far smaller than GSF, meaning its financial impact on Yingli’s sales could be much more limited. The other big difference is that Yingli’s fund is based in China, which has embarked on an aggressive plan to build new solar plants under a directive from Beijing.

That means that the new Yingli solar fund could find plenty of potential buyers for its plants in the form of state-run companies eager to help Beijing meet its ambitious solar plant construction goals. It’s probably still too early to get too worried about this new plan from Yingli, and we’ll have to see how it develops. But if I were an investor, I would certainly keep a watchful eye on this fund, which has the potential to create major headaches for the company down the road.

Bottom line: A new Yingli-invested fund to build solar power plants in China looks like a risky bet that could ultimately undermine the company if no buyers emerge for newly constructed plants.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

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April 15, 2014

Trina Warning Foreshadows Solar Gloom

Doug Young

logo_trinasolar[1].gif

After watching their shares and prospects soar over the past year, solar stocks are suddenly hitting a cloudy patch as investors anxiously wait for most companies to return to the profit column following a 2 year sector downturn. That wait may have just gotten a lot longer, following a warning from Trina (NYSE: TSL) that it will fall far short of its previous sales forecasts for the just-ended first quarter.

Trina blames the problem on short-term factors, as it and other Chinese panel makers work to finalize an agreement to avoid the European Union’s previous threat of anti-dumping tariffs. But hidden in the optimism from Trina and its Chinese peers is the fact that the new agreement is likely to have many of the same effects as the original punitive tariffs. That means most of these Chinese companies will suddenly face resurgent new competition from western rivals in Europe once a deal is reached.

According to its newly issued warning, Trina said it now expects to report it shipped 540-570 megawatts worth of panels in the first quarter that just ended on March 31. (company announcement) That figure is down sharply — about 20 percent to be precise — from the 670-700 megawatts worth of panels that it previously forecast just 6 weeks ago. Trina blames the shortfall on failure to finalize an agreement with the EU, after the 2 sides last year reached a landmark deal that would see the Chinese panel makers voluntarily raise their prices to offset the effect of unfair subsidies from their home government. (previous post)

Most solar shares have rallied strongly over the last year over hopes that a 2 year sector downturn was in the past. But the stocks have given back a big chunk of those gains in the past month, in a needed correction as investors realize a turnaround may be slower in coming than many had hoped.

Trina shares dropped 3.8 percent after its warning, and are down nearly 40 percent since early March. Other panel makers are down by similar amounts, with Yingli (NYSE: YGE) down 42 percent over the same period, including a 6.5 percent drop after Trina’s warning. Even superstar Canadian Solar (NASD:CSIQ), one of the only major panel makers to return to profitability, has lost 34 percent since early March, including a 6.3 percent drop after Trina’s warning.

Some might argue that the current sell-off may be nearing an end, since a 40 percent correction is certainly quite large. But many optimists in the crowd are failing to realize that the new EU agreement will have virtually the same effect as punitive tariffs, since it will force Trina and its peers to raise their prices to levels similar to those from their US and European rivals. That means all the Chinese manufacturers will face stiff new competition under the new agreement in Europe, which has traditionally been their biggest market.

Meantime, the companies could also soon face similar competition in the US, which last year imposed its own anti-dumping tariffs to protest China’s unfair state support for the industry through policies like cheap loans and preferential taxes. The US is currently working to plug a loophole in its earlier decision that allowed the Chinese panel makers to avoid many of the extra tariffs. When that happens, the Chinese companies will also face renewed competition in that market. (previous post)

Two bright spots for the Chinese manufacturers will be their own home market and also Japan, where the governments and private companies have launched ambitious programs to rapidly build up solar power capacity. But those developments won’t be enough to offset the big obstacles in the US and Europe, meaning that Chinese solar panel makers are likely to see both their sales and stocks come under pressure for the rest of the year.

Bottom line: Trina’s sales warning hints at new obstacles for Chinese solar panel makers in the key EU market, putting pressure on their sales and shares for the rest of this year.

aDoug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 12, 2014

Canadian Tax Withholding In IRAs (Poll)

The Canada-US Income Tax Convention provides for the withholding of a 15% or 25% income tax on dividends and interest on dividends payed on Canadian Securities to US residents.  (This includes many of my favorite green income stocks.)  Most people can qualify for the reduced rate by filling out the NR301 Canadian tax form.  Others, such as charitable organizations and retirement accounts qualify for an exemption.

Many custodians don’t get this right, and recovering improperly withheld payments is considerable work, when it’s possible at all.  Canada requires one form NR7-R form per security and per dividend payment, plus supporting documentation.

The long and the short of it is, if you’re going to invest in income producing Canadian securities through your IRA, it’s very important to pick the right custodian.

I plan to write a much more in-depth article on this next month, but since I only have direct experience with this at two custodians (E*Trade (NASD:ETFC) and Charles Schwab (NYSE:SCHW)), I’d like to get readers’ experiences with other custodians so I can give a comprehensive guide as to which custodians handle this most effectively.

If you own dividend paying Canadian stocks in a US retirement account, please take my survey, or leave a comment.

I don’t want to prejudice the survey by relating my experiences yet, but here are some stocks for which I know that some custodians withhold tax:

AQUNF, INGXF, MCQPF, NFYEF, NPIFF, PENGF, PFBOF, TRSWF, WFIFF

Survey Link

This article was first published on the author's Forbes.com blog, Green Stocks on April 1st

April 10, 2014

Investors Push The Hydrogenics Reset Button

by Debra Fiakas CFA

Last week shares of Hydrogenics Corp. (HYGS:  Nasdaq) took a steep dip down.  Earlier in the week the company filed a shelf registration statement to raise up to $100 million in new capital over the next two years.  Then before the last day of trading began the company issued new guidance for the year 2014, suggesting weaker sales in the first quarter than previously expected but reaffirming expectations for the full year.

The statement replaced an earlier shelf registration statement for a $25 million capital raise.    The filing came as no surprise to investors, but the significant increase in the potential capital raise may have given a few some pause. What seems to have thrown a wrench in the chart is the disappointment over the first quarter sales guidance.

Hydrogenics has been developing fuel cell technologies.  The company’s expertise is in water electrolysis, a technology for making hydrogen from water.  Hydrogenics earns much of its revenue providing on-site industrial gas generation services, principally hydrogen.  The company also knows proton exchange membranes and produces fuel cells for energy storage solutions.  The company has managed to increase sales each year, but is still operating at a loss.  In the most recent twelve months Hydrogenics reported $42.4 million in total sales, but suffered a loss of $6.1 million.

It is understandable why shareholders might be sensitive to any whiff of a weak top-line.  However, in my view, the 10.6% sell-off on Friday following the new guidance announcement was an overreaction.  An investment in a developmental stage company should not hinge on the shift of revenue from one quarter to another unless there are implications that market potential has weakened or customers have been lost.  Management did suggest that realization of backlog will be mostly in the second half of the year.  Such announcements are often followed by additional delays.  However, management also provides encouragement that there its business pipeline is building, providing further support for sticking to its guidance for$50 million in total sales for the year and the possibility of finally reaching breakeven.

The stock has been reset, perhaps appropriately if profitability is not yet within the company’s grasp.  Yet Hydrogenics has made progress, establishing a credible foothold in its markets.  Even if you are skeptical about Hydrogenics’ guidance for 2014, the sell-off in HYGS might seem enticing to investors who are bullish on the company in the long-term.  Unfortunately, a review of recent trading patterns suggest there is now pronounced bearish sentiment has now been registered in the stock that might take some time to play out.  It might be better to wait for all selling to take its course before rebuilding positions.


Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 09, 2014

SolarCity's Second Solar Lease-Backed Bond Closes Thursday

SolarCity is on the road with a $70.2m, 8yr, BBB+ rooftop solar leases securitization; closes Thursday

SCTY residential solar.pngSean Kidney

US company SolarCity (NASD:SCTY) has priced a solar bond backed by cash flows from a pool of 6,596 mainly residential solar panel systems and power purchase agreements in California, Arizona, and Colorado. Expected bond figure is $70.2 million, but the bond doesn’t close until Thursday this week. Interest rate is 4.59%. Credit Suisse is structurer and sole bookrunner.

This is SolarCity’s second solar securitization in six months. Their previous (ground-breaking) bond was for $54.4 million with an interest rate of 4.8% – but 13 year tenor.

——— Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

April 08, 2014

It's Time to Buy SolarCity

By Jeff Siegel

Well, it was a record-breaking day for Texas last week.

On March 26, at 8:48 p.m., nearly 30% of the Lone Star State's electricity was generated by wind.

Most came from West Texas, and there wasn't a single issue regarding integration.

Despite the common refrain of “the grid can't handle all this intermittent power,” Texans had no problem turning on the lights with all those extra wind-powered electrons.

Of course, for those of you who rely on actual data instead of empty rhetoric, this should come as no surprise. In fact, a new study just published by PJM Interconnection indicates that large amounts of integrated solar and wind won't just be safe for the grid — they also won't cause energy prices to rise.

The 30% Solution

PJM Interconnection is a regional transmission organization that serves 13 states and the District of Columbia. It’s actually the biggest wholesale electricity market in the world, serving about 60 million people with nearly 60,000 miles of transmission lines across its service area.

So yes, any time we get new data analysis from PJM, we take it very seriously.

According to PJM, wind and solar could generate about 30% of all electricity for its territory by 2026 without any significant issues. This would be the equivalent of about 113,000 megawatts of installed wind and solar resources, powering 23.5 million homes annually.

Now, the entire report is about the size of a small novel, so I'll just break down a few of the key findings that analyst John Moore recently shared with Greentech Media.

Based on estimates of 30% penetration, we can see the following benefits:

  • Lower average energy prices across PJM's footprint because wind and solar would avoid $15.6 billion coal and natural gas fuel costs.
  • Very little additional power (only 1,500 megawatts) needed to support the minute-to-minute variability of the renewable power.
  • No additional operating reserves (spinning) needed for backup power.

Moore goes on to write:

“Getting all of this additional clean energy will require more transmission lines, which PJM’s study estimated would cost $8 billion. That is still far less the $15.6 billion in energy savings. But even that’s probably an exaggeration, since PJM’s study looked only at renewable energy expansion inside PJM. It didn’t consider, for example, the savings from importing some of the wind power from the Dakotas, Minnesota, Iowa, or other parts of the wind-rich Midwest and Great Plains. When you factor in those possibilities, the total transmission cost of achieving the 30 percent renewables integration could be lower than PJM’s predictions.

It’s clear that the grid can handle high levels of renewable power without compromising reliability. Of course, we already know this because the Midwest and Texas grids have seen wind energy constitute a significant portion of the power on the grid at a given time. The PJM study affirms that the grid can handle much higher power levels. It also provides a stepping stone to evaluating the impacts and savings of even more renewable power on the grid...”

Of course, folks still need to put this stuff into perspective.

Yes, the continued integration of renewable energy is a lock, but that doesn’t mean it’s going to send fossil fuels packing. In fact, natural gas will continue to provide the lion’s share of our power generation for decades to come. That being said, it's indicators like the one PJM just provided that further validate our long-term bullish stance on alternative energy.

The question is, if you're looking to take advantage of this continued integration of renewables, where can you get the most bang for your buck?

Sizing Solar

Based on PJM's report, here's how the breakdown looks for its territory:

pjm-electricity-resources[1].png
Although wind makes up a sizable piece of the pie, there are few pure plays in this space. I do like Pattern Energy Group (NASDAQ: PEGI). I actually recommended it back in October when it was trading for $23. Here's how it's performed so far...
pegi-chart[1].png

Pattern Energy Group is an independent power company that owns and operates eight wind power projects in Canada, the United States, and Chile. Total owned capacity is just over one gigawatt.

I particularly like the 4.5% dividend on this one, too.

However, looking at the chart, you can see solar's offering the biggest growth opportunity. And there are a number of ways to play this...

Personally, since the solar space absolutely crushed it last year, I'm getting a bit pickier about which solar stocks to own in 2014. But a couple of weeks ago, one solar stock in particular got hammered. And it didn't take long for me to buy a few cheap shares on the dip.

On March 19, SolarCity (NASDAQ: SCTY) took it on the chin after the company reported earnings and investors saw that guidance had fallen below expectations. The stock fell hard, and it is now oversold.

As of April 7th, you can pick up shares of SCTY for less than $55 a share.

The way I see it, this is a $75 stock that's offering a huge discount to bargain hunters. Even Goldman is maintaining its $85 price target, and Deutsche Bank is holding its $90 price target.

Bottom line: An overreaction to lowered guidance opened up an excellent buying opportunity.

To a new way of life and a new generation of wealth...

To a new way of life and a new generation of wealth...

 signature

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

April 07, 2014

Ascent Solar: Grounded

By Brandon Qureshi

Recently, Ascent Solar Technologies (ASTI:  Nasdaq) , a publicly traded solar power company, received an additional $5.0 million from institutional investor Ironridge Technology, thereby completing a $10 million Series B Preferred Stock investment.  AST, based in Thornton, Colorado, has emerged as a leader in the development of flexible, thin, high-performance solar panels.

In order to examine AST within an industrial context, a profile of the solar power industry is necessary: According to sources such as Time and E&E Publishing, the industry has experienced record levels of popularity in the United States in the last few years. Indeed, a report published by the Solar Energy Industries Association and partner GTM Research demonstrates that the industry has grown by a whopping 41 percent in 2013 alone, citing record levels of installations in the utility sector. Moreover, solar electric installations continue to increase in value – from $8.6 billion in 2011 to $11.5 billion in 2012 to $13.7 billion in 2013.

What has driven this industrial surge? The report names decreasing prices spurred by technological advancements in the field of solar energy: the average price of a solar panel has declined by 60 percent in the past three years, and the national average photovoltaic installed system price declined by 15 percent in 2013 alone.

With this in mind, what role does AST play in the development of the solar power industry? AST uses substrate materials in its creation of photovoltaic modules, which causes them to be exceptionally flexible, thin, and affordable. These modules can then be implemented in the manufacture of traditional solar panels, building materials, and consumer electronics. Thus, AST is one of several solar power companies that, by decreasing the price of solar energy products, have contributed to their increasing availability, consumption, and production.

How does AST plan to use Ironridge Technology Co.’s investment? It seems that the funds will go largely to marketing efforts: aside from the proceeds that will be used to finance ongoing operations, the funds will be used to develop the Enerplex brand. Enerplex of one of AST’s projects, which involves the implementation of AST’s solar panel technology into everyday appliances including phone cases, chargers, and battery packs.

What does the future hold for the solar power industry? It’s hard to say. There is the obvious: the United States solar industry has experienced unprecedented growth in recent years and is currently the second-largest source of new electricity generating capacity in the nation; but is the situation really so simple? Every year, tax breaks for renewable energy expire – these expirations are bound to adversely impact the industry. The cost of solar power is hardly certain: because a significant portion of the diminishing costs of solar panel manufacture is due to imports from China – which installed of 12 gigawatts of solar capacity in 2013 alone – experts fear an upcoming “trade war” characterized by taxes and rising prices.  Clearly, the future of the solar power industry is no safe bet – or at least not as safe as current conditions suggest.

Is AST a reliable investment opportunity? There can be no doubt of the strength of the company’s product – indeed, its unique CIGS technology has been listed among the top inventions of 2010 and 2011 by both Time and R&D Magazines. Moreover, in the month since Ironridge Technology’s investment, investors have enjoyed a 13.85 percent return on their investments. Within a larger time frame, though, this positive return rate is misleadingly optimistic: since 2008, return rates have plummeted by almost 90 percent, and have barely changed between 2013 and 2014. Despite the obvious innovation of AST’s technology, the company itself doesn’t seem to be going anywhere fast – especially when one considers the uncertain future of the solar power industry.
 
Brandon Qureshi is a student at Columbia University, majoring in economics. He has a particular interest in alternative energy topics and has devoted some of his recent academic projects to the economics of new energy sources. 

This article first appeared on
Crystal Equity Research's Small Cap Strategist web log.

Neither the author, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 06, 2014

Orion Energy Systems: Right Industry, Right Time

by Debra Fiakas CFA

March 31st marked the end of fiscal year 2014 for Orion Energy Systems (OESX: Nasdaq), a provider of energy-saving lighting systems.  The half dozen or so analysts who follow the company on a regular basis think the company will be able to report about the same level of sales as the same quarter last year, but will actually suffer a penny loss instead of making a profit as they did last year.  If they are right it will be a setback for Orion, which higher sales this year than last and has so far had a small profit. 

Orion+Lighting+Systems[1].jpg
Orion Energy Systems - Exterior Lighting

That Orion’s prospects are improving should be no surprise.  The benefits of efficiency measures to reduce energy costs are just recently beginning to gain respectability.  The Consortium for Energy Efficiency (CEE) reports that in 2012 alone efficiency programs sponsored by electric utilities in the U.S. saved enough power to serve over 12 million homes for one year  -  126 TWh.  The data was enough to help CEE analysts to conclude that energy efficiency is the most important source of clean, cheap energy because utilities do not need to generate as much power if their customers require less electricity.  A reported from the Natural Resources Defense Council says energy efficiency has outperformed all other energy resources combined, including the various fossil fuels and nuclear power.

The elevation of energy efficiency on par with energy sources should support higher valuation multiples for energy efficiency solution providers, especially those that have honed a profitable operating structure.  Orion has managed to maintain its gross profit margin over 30% although its profits have slipped from a peak of 33.7% in 2011.  Orion has also struggled to keep revenue on a consistent upward march.  Sales in the twelve months ending December 2013, were $98.2 million, back up to the company’s record revenue level of $100.6 million recorded in 2012.

However, analysts expect only $98.3 million in the fiscal year .  It is not until next year that the consensus reflects a decisive acceleration in sales activity  -  the kind that generates profits.  The consensus estimate for fiscal year 2015 that begins today is $0.12 in earning per share on $108.8 million in total sales.

Comparisons of Orion’s earnings in the coming quarters should be favorable.  That could keep the stock on an upward trajectory similar to the ramp that can be seen in the OESX historic stock price chart.  A review of trading patterns during the last two months suggests that the stock is may be poised to take a bit of a breather in the near term.  That would provide an interesting opportunity to take a long position in a company that has established a foothold in the right industry at the right time.   

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 05, 2014

Record-Breaking $9bn Green Bonds Issued in Q1

Bridget Boulle

It’s been another ground breaking quarter for green bonds – the biggest yet with just under USD9bn issued ($8.997bn). It seems our initial estimate of $20bn for the year will be met much sooner than we thought so we’ve revised it to $40bn (there are no rules).

There have been new issuers, new currencies, new underwriters, new areas of issuance and, for the first time, a green bonds index. All good things, here is a summary…

The development banks led the way for the quarter but not by too much: development banks = USD4.9bn while corporates = USD4.03bn (it may seem quite a big gap but the first corporate bond was only issued in Nov 2013 while the Development bank market has been going since 2007).

Firsts

  • New development bank: Canadian Export Development Bank
  • Four new corporate issuers: Toyota, Unilever, SCA, TD Bank
  • Transport sector green securities: Toyota with an ABS linked to electric and hybrid vehicles
  • New currencies: GBP, CHF
  • Green Bond Index released by Solactive (a Climate Bonds Partner). It includes mostly labelled issuance as well as some project bonds.

Top 5 issuers for the quarter

  • EIB = $2.9bn
  • Toyota = $1.75bn
  • World Bank = $1.3bn
  • Unibail-Rodamco = $1bn
  • TD Bank = $452bn

EIB has continued to prove its worth as the hero development bank by being by far the largest issuer, almost double Toyota. They issued six times (some taps of existing bonds) in 5 currencies – CHF, EUR, ZAR, GBP and SEK.

Demand

Demand has been very strong particularly with new issuers:

  • Canadian Export Development Bank: $500m orders on $300m bond in 15 min
  • Unibail Rodamco: 3.4x oversubscribed
  • Toyota: upsized from $1.25 to $1.75
  • Unilever: 3x oversubscribed
  • SCA: 50% oversubscribed
———  Bridget Boulle is Program Manager at the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. Bridget has worked in sustainable investment for 6 years, most recently at Henderson Global Investors in the SRI team. 

April 04, 2014

Ocean Power Technologies Riding The Waves

by Debra Fiakas CFA

Shares of Ocean Power Technologies (OPTT:  Nasdaq) have traded off over the past two weeks, after setting a new 52-week high in early March 2013.  Investors had bid the stock up in the weeks before the fiscal third quarter earnings announcement, but those gains almost have been erased.  The new negative trend has put OPTT on our list of small-cap energy stocks sinking into oversold territory. 
PowerBuoy[1].jpg
Is the sell-off a chance to pick up shares of this ocean power developer at a bargain?  A better question might be what was in that earnings report that spooked investors into shedding the stock.

Ocean Power is trying to develop ocean power technologies.  The company’s PowerBuoy system is an ocean-going rig that is configured to capture and convert wave energy into electricity.  Ocean Power has managed to set up several demonstration projects around the world, supported by government grants and development contracts.    Ocean Power also has a contract with Mitsui Engineering for a deployment near the coast of Japan.


Still Ocean Power has to come up with matching funds.  In January 2014. the company raised $6.3 million through the sale of common stock.  The company needs the cash to support operations, which used $10.7 million in cash over the twelve months ending January 2014.  There is now $17.4 million in cash on the balance sheet, it appears the company has enough financial muscle to last about a year and a half.

Perhaps investors were looking for some evidence that Ocean Power would be able to reduce its cash burn.  However, the quarter results revealed management is still grappling with the nitty gritty of getting its projects off the ground and into the ocean.  Permitting and financing matters have delayed its projects in Oregon and Spain.  Consequently, reported revenue in the third fiscal quarter was significantly lower than expectations.  There is no hope for reduced cash burn when management reveals one delay after another.

Thus, after hitting a new high price, it should not be a surprise that OPTT shares weakened.  It might be a bit premature to begin buying at the current price near $3.50.  A review of historic trading patterns suggests there is a line of price support at near the $3.40 price level.  Should the stock test and fall through this level, it is quite possible the stock could fall considerably further, perhaps even to the $2.50 price level.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 03, 2014

Strong Returns Continue for Alternative Energy Mutual Funds and ETFs

By Harris Roen

Alternative Energy Mutual Fund Returns

Alternative energy mutual funds have posted extremely strong returns across the board. Gains have shown a wide breadth, with all MFs up for the last 12-month and 3-month periods. In the past year, all funds are up double digits.

A new fund has been added to our tracking system, Calvert Green Bond A (CGAFX). This fund started trading in November 2013, and is the first green open end bond fund designed for retail investors. CGAFX focuses at least 80% of its assets on “…opportunities related to climate change and other environmental issues.”

Credit ratings for holdings in CGAFX are solid overall. Almost 70% are invested in either cash, U.S. Treasuries, or A rated bonds or better…

MF_20140321[1].jpg

Alternative Energy ETF Returns


ETF_20140321There are a wide range in returns for ETFs this month. On average the group is looking very strong, as returns and other measures have been improving.

The two purest solar funds, Guggenheim Solar (TAN) and Market Vectors Solar Energy ETF (KWT), show the strongest returns. Both have more than doubled in the past in the past year, and both are up by about a third in the past three months.

The two mining funds in this group, Global X Lithium ETF (LIT) and Market Vectors Rare Earth/Str Metals (REMX), are the poorest performers. REMX is down 23% for the year, and LIT is basically flat…

ETF_20140321[1].jpg

DISCLOSURE

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

April 02, 2014

LDK Melts Down, Solar Default Signs Grow

Doug Young 

One of China’s 2 major meltdowns in the solar panel sector has taken a big step forward with word that trading in shares of LDK Solar (NYSE: LDK) has been suspended and the de-listing process formally begun as the company liquidates. Meantime, word of a missed interest payment by a building materials maker is sending the latest signal that China will let more companies in ailing sectors default on their debt rather than pay off their creditors. That’s an important signal for the solar sector, which relies heavily on such debt to finance its operations and where many smaller players are in danger of similar defaults.

Let’s start this solar summary with LDK, which together with former solar superstar Suntech (OTC: STPFQ) is in the process of liquidating amid a broader sector clean-up. But whereas Suntech has been liquidating under the supervision of a bankruptcy judge, LDK has chosen the stranger route of winding down without such protection. Perhaps that’s not too surprising since China is quite new at bankruptcy reorganizations, though it has created a strange process where LDK has been quietly talking with its creditors and selling off assets in a process that’s not too transparent.

The company gave an update last week on talks with its bondholders and an interim financing agreement (company announcement), and has just provided a further update on the imminent de-listing of its stock. (company announcement) According to the announcement, trading in shares of LDK has been formally suspended — something that should have happened long ago. LDK also said the New York Stock Exchange has begun a process of de-listing the company’s shares.

Suntech’s shares were de-listed from the New York Stock Exchange months ago and now trade over the counter, following the company’s bankruptcy declaration about a year ago. Such a de-listing didn’t happen for LDK because it never formally declared bankruptcy, which is why the stock exchange itself is finally taking an action that should have happened months ago.

According to its latest announcements, LDK is still talking with bond owners about terms for paying off its debt, offering 20 cents for every $1 of investment. The process still looks like it may take a while to complete, but I expect LDK to disappear as an independent company by the end of this year.

Meantime, let’s look at the other major news that sends the latest signal that more solar companies could soon default on their debt payments. That would accelerate a process that saw 1 company default on a bond interest payment last month and another move in a similar direction. The latest reports say that closely held building materials maker Xuzhou Zhongsen failed to make a 180 million yuan ($29 million) payment on some high-yield bonds that was due on March 28. (English article)

That particular story is related to the real estate sector, which is gearing up for its own much-needed correction following a housing bubble that has seen property prices soar to ridiculous levels over the last decade. But the more important message is that Beijing will let ailing companies default on their debt, and make investors more responsible for losses when they buy risky bonds. That would mark a sharp shift from the past, when government entities would almost always come to the rescue of state-run companies that were in danger of defaulting on their debt.

Last month saw a major milestone when mid-sized solar panel maker Chaori Solar missed a bond interest payment, becoming the first such corporate bond default in modern Chinese history. Not long after, trading in shares of Baoding Tianwei (Shanghai: 600550) was suspended as it too flirted with a debt default. (prevoious post) This latest default by Xuzhou Zhongsen shows that the flow of defaults is likely to pick up in the months ahead, hitting many mid-sized and smaller solar players and hurting the ability of larger players to raise new funds.

Bottom line: LDK’s liquidation is likely to be complete by year-end, while the latest market signals indicate more smaller solar companies will default on their debt in the months ahead.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

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