September 02, 2015

Ten Clean Energy Stocks For 2015: Buying Opportunities

Tom Konrad Ph.D., CFA

In the two months since my last "monthly" update, the stock market has been in turmoil.  At the end of June, I was pleased report that my Ten Clean Energy Stocks for 2015 model portfolio was not only up for the year, it was comfortably ahead of its benchmarks.  At the end of August, the report is of a more win-the-battle-lose-the-war variety. The portfolio is still ahead of its benchmarks, but it's now down 1% for the year to date.

The portfolio lost 4.8% in July and 5.7% in August, to end down 1.0% for the year to date.  This decline was entirely due to the strong dollar: without the relative decline of the Canadian dollar, Euro and South African Rand, the portfolio would have been up 5.5%.  In contrast, its broad market benchmark, IWM, was down 1.1% in July, down 6.3% in August, and down 3.7% year to date.  Its clean energy benchmark was down 8.4% in July, down 10.7% in August, and down 21.3% year to date. 

The clean energy benchmark is a 60/40 weighted average of the income and growth benchmarks discussed below.

I feel that the recent volatility presents a great buying opportunity for many of the stocks I follow, especially the income stocks.

On Wednesday last week (the day of the market low), I persuaded a client to add some cash to her account.  The money reached the account on Thursday, one day after the market's low, but I was still able to buy a number of stocks for her at very compelling prices on Thursday and Friday as the market began to rebound.   I also invested all available cash in the other accounts which I manage, including funds freed up by reducing positions in PFB Corporation (TSX:PFB; OTC:PFBOF), which was a stock from my 2014 model portfolio.  As I wrote at the time, I dropped the stock not because I did not like its prospects, but because I felt few readers had bought it because of the foreign listing and low liquidity.  I suggested that readers hold the stock last December when it was in the low C$4 range.  Now that the stock is up significantly (around C$9) and there are many other attractive income stocks to choose from, it's time to take some or all of our profits.

Value/Growth and Income Sub-Portfolio Performance

The six stock income sub-portfolio continues to hold up despite the turmoil and strong dollar.  It fell only 0.7% in July and 0.9% in August, for a still strong 13.6% return year to date.  This performance is even more remarkable given that Yieldcos, the best known clean energy income investments, fell 8.1% in July and 10.7% in August, as measured by the Global X YieldCo Index ETF (NASD:YLCO), which I also use as a benchmark for the income sub-portfolio.  Year to date, the benchmark (which began the year as JXI, until YLCO was launched at the end of May) is down 21.3%. 

The Green Alpha Global Equity Income Portfolio (GAGEIP) strategy which I manage with Green Alpha Advisors also fared well despite the market turbulence.  It was flat in July, and fell only 2.3% in August.  For the year to date, it is up 5.6%.

The four stock value and growth sub-portfolio continues to fare poorly.  It was down 11.0% in July and 12.8% in August, for a decline of 23.0% year to date.  Its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), also fell 8.9% in July and 10.6% in August, but these smaller declines left PBW well ahead, with a 16.7% fall year to date.

Individual Stock News and Returns

The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month's news for each stock.

10 for 2015 performance thru 8/31/15 

The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
8/31/15 Price: $18.99. YTD Dividend: $0.52  YTD Total Return: 37.1%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong announced second quarter earnings, with a 19% increase in core earnings per share for $0.26.   The company originated $455 million in transactions during the quarter, bringing its investment portfolio to $1.1 billion, 30% of which were energy efficiency investments and 67% of which were in renewable energy, with the balance in other sustainable infrastructure.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72.  Beta: 1.54.  Low Target: $10.  High Target: $30. 
8/31/15 Price: $14.55. YTD Dividend: $0.36  YTD Total Return: 0.01%.

International manufacturer of electrical and fiber optic cable General Cable Corp. fell, most likely because the investors are no longer chasing rumors that the company might be acquired by European competitor Prysmian (OTC:PRYMF), as well as the general market decline.  Second quarter results were strong, with adjusted earnings per share of $0.36 coming in well ahead of analysts' average estimate of $0.26 per share.  The company also completed the sale of its operations in Thailand on August 31st, which was part of the restructuring that is already improving profitability.

The company will pay its second quarter dividend of $0.18 to shareholders of record as of August 17th.  I only added small amounts of BGC to my managed portfolios, but that was more because it rebounded from its $13 low extremely quickly.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.84.   Low Target: C$10.  High Target: C$15. 
8/31/15 Price: C$11.02. YTD Dividend: C$0.53  YTD Total C$ Return: 0.0%. YTD Total US$ Return: -11.6%.

Yieldco TransAlta Renewables reported its second quarter results.  On a per share basis, Funds From Operations (FFO) and earnings both increased significantly because of the drop-down of its parent's (TransAlta (NYSE:TAC)) Australian assets on May 7th.  Cash Available For Distribution (CAFD) per share increased to C$0.24 for the quarter from the same period in 2014.

Despite these strong fundamentals and a 7.6% yield, the stock fell 14% in July and August, most likely dragged down by the poor performance of other (mostly lower yield) Yieldcos and the 5% decline in the Canadian dollar.  (The Yieldco ETF YLCO was down 18% over the same period.)  I thought it was already a great value before the recent decline, and have been adding to my position in several managed portfolios.

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30.  Low Target: C$3.  High Target: C$5.  
8/31/15 Price: C$3.24. YTD Dividend: C$0.15  YTD Total C$ Return: 5.9%.  YTD Total US$ Return: -6.4%.

Canadian power producer and developer (Yieldco) Capstone Infrastructure bucked the Yieldco and Canadian currency declines with a 3% gain in July and August. The gain was most likely due to provisional findings in the UK Competition and Markets Authority's (CMA) evaluation of Capstone's UK water subsidiary's appeal in a regulatory matter against its regulator, OfWat.  While Capstone seems likely to only get part of what it wants in the case, investors seemed to have been assuming that Capstone would get nothing at all.  The market took the provisional findings as good news.  This may have been because the CMA later stated that its evaluation would be extended by up to two months.  If the CMA did not think that Capstone had strong grounds for appeal, it seems likely that it would not have felt the need for more time to evaluate the case.

Capstone also received an excellent in-depth write up by Spy Hill Research on Seeking Alpha.  I recommend it highly to anyone who wants to become familiar with Capstone's business.

I have not been adding significantly to my positions in Capstone in the last two months, but only because they are already quite large.

New Flyer Industries (TSX:NFI, OTC:NFYEF)
.

12/31/2014 Price: C$13.48.  Annual Dividend: C$0.62.  Low Target: C$10.  High Target: C$20. 
8/31/15 Price: C$19.11.  YTD Dividend: C$0.40  YTD Total C$ Return: 44.4%.  YTD Total US$ Return: 27.6%.

Leading North American bus manufacturer New Flyer reported excellent results for the second quarter, well ahead of most analysts' expectations.  The company is reaping the benefits of consolidating its lead and streamlining its operations during the industry downturn over the last 5-7 years.  CIBC, Cannacord Genuity, and National Bank Financial all increased their price targets or ratings in the days following the earnings announcement.

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: €0.61.  Low Target: 12.  High Target: €20.
8/31/15 Price: €19.14. YTD Dividend: 0.61  YTD Total Return: 45.2%.  YTD Total US$ Return: 34.6%.

European bicycle manufacturer Accell Group reported that its first half net profit was up 21% compared to the first half of 2014 in July, and the stock took off, rising 20% in Euro terms and 18% in dollar terms for the month. The entire bike sector has been enjoying a strong tail-wind, outperforming other transportation industries (carmakers, automotive suppliers, truck manufacturers, and aerospace) for the first half of 2015.

SNS Securities increased its price target for Accell from Accumulate to Buy on September 1st, citing its relative undervaluation compared to other bicycle stocks. 

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: $0.24.   Beta 0.36.  Low Target: $10.  High Target: $20.
8/31/15 Price: $10.08 YTD Dividend: $0.12.  YTD Total Return: -21.7%.

Biodiesel and specialty chemicals producer FutureFuel reported strong revenues but weaker profits in the second quarter.  The decline in profitability was driven mostly by low oil prices (which determine the price of biodiesel.) Falling profits caused shares to fall as well, but insiders remain bullish, with two directors making substantial stock purchases in August and no insider selling.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
8/31/15 Price: $4.60. YTD Total Return: -44.9%.

Solar and rail Real Estate Investment Trust Power REIT's continued to decline slowly in July and August.  I expect that investors are frustrated that the judge in the REIT's civil case with its rail tenants Norfolk Southern Corp and Wheeling and Lake Erie will not make his ruling until the fourth quarter of this year.

Power REIT's preferred shares, PW-PA have also been trading down.  As I've said before, the 7.75% coupon is not in my opinion at risk and should be treated as return of capital due to the lawsuit.  Because of this, I've been adding to my positions.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
8/31/15 Price: $5.67. YTD Total Return: -19.0%.

The EPA's Clean Power Plan should provide a good boost to energy service contractors like Ameresco, but investors seemed unimpressed. The stock also fell despite strong second quarter results, which exceeded analysts' expectations for the fourth quarter in a row.  My best guess as to why the stock remains in the doldrums is that it has been down for so long that investors have given up and stopped paying attention.  If they were paying attention, the stock would almost certainly be advancing instead.

Two people who are paying attention are Director Francis Wiseski and President and CEO George Sakellaris.  Both have been making large and regular purchases of AMRC stock (and no insiders have sold) in the last year.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: ZAR 0.08 or $0.15  Beta:  0.78.  Low Target: $5.  High Target: $20.
8/31/15 Price: $6.08. YTD Dividend: $0.  YTD Total South African Rand Return: 7.6%.  YTD Total US$ Return: -6.5%.

Vehicle and fleet management software-as-a-service provider MiX Telematics announced earnings for the quarter ended June 30th, meeting analyst expectations and continuing the company's trend of 15% annual subscription growth.  However, the stock fell substantially over the two last months in part because of the general market decline, but also because it concluded its strategic review process without the sale of the company that many speculators had been betting on.  The company stated that there had been "significant interest from prospective buyers," so we can only assume that the offers were not at a price that management found attractive.

I believe MIXT is worth at least two or three times its current price, based on its rivals' valuations.  The lack of sale came as a bit of a relief to me: I had been worried that the company might agree to a sale below what I think it is worth.  Instead, it resumed its dividend  of 8 South African cents per year, and will pay dividends for the preceeding 5 quarters (ZAR 0.10 or $0.19 per share) on September 18th.  This resulting 2.5% annual dividend from a company that is growing earnings at over 15% per year underscores MIXT as a compelling value proposition.

Buying Opportunities

Two months ago, I called TransAlta Renewables and Capstone Infrastructure the best buys in the list.  Capstone was a good call, but TransAlta Renewables disappointed again, albeit not as much as most Yieldcos.  I suppose I should not complain about getting one winner out of two in the market turmoil of the last two months.  On average, my two picks were flat in Canadian dollar terms, but down 5.5% in US currency.

Right now, I see many excellent buying opportunities, and I don't want to limit them to this list.  On this list, I've currently very enthusiastic about TransAlta Renewables, Ameresco, and MiX Telematics.  Elsewhere, I have been aggressively buying Enviva Partners, LP (NYSE: EVA), Innergex Renewable Energy (TSX:INE, OTC:INGXF), Pattern Energy Group (NASD:PEGI), and Abengoa Yield (NYSE:ABY).

It's no coincidence that almost all of these picks have high yields.  The market correction has been mostly due to overvaluation combined with worries of a worldwide economic slowdown.  If that slowdown materializes, it will put downward pressure on interest rates, which in turn helps income stocks.  The market turmoil itself is also reducing the pressure for the Federal Reserve to raise rates soon or quickly, and this also increases the value of long term income streams.

Conclusion

Although it's been a tough couple of months in the stock market, a correction has been long overdue.  The reminder that stocks can go down as well as up is likely to make investors pay more attention to the risks of the stocks that they buy.  Portfolios like this one, which have a bias towards low risk stocks, should be relative beneficiaries over time.

That said, there is no guarantee that the correction is over, and so while there are currently a large number of very compelling investment opportunities, investors should also be looking at potential ways to free up capital if the opportunities become even more compelling in the near future.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI.  I am the co-manager of the GAGEIP strategy.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

September 01, 2015

Blue Sphere's Eyes On The Horizon

by Debra Fiakas CFA

Renewable energy companies have to worry about flagging commodity prices that make it even more difficult to prove the competitive potential of alternative fuels, as well as possible disruption in the capital markets and valuation multiples which are concerns of all public companies.

Shlomi Palas, the CEO of  Blue Sphere, Inc. (BLSP:  OTC/QB), a microcap in the Crystal Equity Research coverage group, is not dissuaded.  He continues to push forward with the company’s strategy to own and operate biofuel-powered, grid-connected generation facilities.  Blue Sphere has two food-waste-to-energy plants under construction in the U.S. in North Carolina and Rhode Island.  The company is also pushing forward with two additional ‘greenstart’ biogas plants.  Management is working to secure a power purchase agreement for a 5.2 megawatt plant planned near Middleboro, MA, where local governments are keen on keeping food waste out of landfills.  Another waste-to-energy biogas plant is planned near Ramat Chovav, Israel.  The project would for the first time give Blue Sphere an operating presence in its home country. 

It is never easy for developmental-stage companies like Blue Sphere to bring the vision into focus for investors.  With first electricity sales from its North American projects still months away, Blue Sphere is buying four operating biogas plants in Italy, each with a capacity of one megawatt of power and each with a strong power purchase agreement in place.  With closing the Italy plants could deliver Blue Sphere’s first sales to its top-line.  In the company’s quarterly financial report management reveals the continued, but quite protracted odyssey to closing.
Blue Sphere has arranged financing for the Italy power plants acquisitions, putting it in 100% ownership of the plants.  However, to move forward with the two North American food-waste-to-energy projects, the company entered into a joint venture with a U.S. investment fund.  In the end Blue Sphere will lay claim to 25% and 22.5% of the North Carolina and Rhode Island joint ventures, respectively.  The arrangement might have been disappointing to some shareholders who had expected Blue Sphere to retain equity control over the projects.  However, the reality of U.S. capital markets in general and renewable energy financing in particular, has been challenging. 

In 2014, there had been a 17% increase in world renewable energy investment, bringing total new capital to $270 billion for the year.  This was just short of the peak in global investment of $279 billion reached in 2011.  The rebound was due in part to the achievement of an inflection point of sorts.  In 2013, the world added 143 gigawatts of renewable electricity capacity compared to the addition of 141 gigawatts of new plants that burn fossil fuels.  It was the first time that renewable fuel additions outpaced fossil fuel additions.  Bloomberg Energy Finance group estimates renewable energy additions could grow by more than four times by the year 2030, leaving new fossil fuel power plants far behind.  The trend is driven in part by the dramatic decline in the price of wind and solar power sources.
However, in the near-term the falling price of oil has given some investors pause in considering biofuel alternatives for power generation.  It is clouding the investment pitches made by executives like Palas who head up smaller, unproven companies.  It is vital to keep perspective.  In the long term oil, at least oil that is paying its way in environmental cost, cannot compete with renewable fuel sources for power generation.

Oil may be at a low in its cycle and that may be impacting world business.  The specter of oil barrels being sold off for $40 may have rattle some enough to divest of U.S. equities.  However, the entrepreneurial spirit keeps the eyes of Palas and his fellow biofuel development colleagues glued to the horizon, where the price of oil has no relevance in a world powered by renewables.

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.  BLSP is featured in research reports published by Crystal Equity Research.  Please note the important disclosures at the end of all Crystal Equity Research reports.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

August 28, 2015

The Velocity of Amyris

Jim Lane amyris logo

What makes Amyris (AMRS), Amyris? We look at the products, the evolution of the story, the partners, the focus on yield, and deeper into the story of Rate.

“I mean, man, whither goest thou? Whither goest thou, America, in thy shiny car in the night?” “Whither goest thou?” echoed Dean with his mouth open. We sat and didn’t know what to say; there was nothing to talk about any more. The only thing to do was go.”
— Jack Kerouac, On the Road

Amyris experienced last month what CEO John Melo referred to as “our fastest product start”, and you might wonder, was it a fuel, a chemical, a fragrance, a flavor, a biotech service platform?

None to all of the above. It’s a product called Muck Daddy, a high performance, fast-acting hand cleanser. And if the brand sounds just a little bit like Puff Daddy, that’s perfectly OK.

The Many Faces of P.Diddy and P.Amyris

muck-daddyThere’s no better example than the artist known variously as Sean Combs, Puff Daddy, P. Diddy, Diddy, Sean John, and more recently Swag, to help us understand what a sustainable biotech company like Amyris is all about.

When I first heard of Sean Combs, it was in his years as founder of Bad Boy Records, an influential East Coast rap label that was home for Biggie Smalls (The Notorious B.I.G). I was working out of the West Coast in the mid 90s, booking some hip hop acts for AOL Live! sessions — the likes of Coolio, Cypress Hill and KRS-One.

Then, he was Puffy, and I’ve kept tabs on him since; he came forward as a performer in 1997. Daddy, Diddy, Swag — it takes a lot of identity and costume changes to survive and thrive in the world of hip-hop. Underneath, there was always the artist and the business mind.

Back to biotechnology. Over the years, we’ve had a lot of identities for Amyris, too. The changes and re-directions annoyed some of the people all of the time, and all of the people some of the time.

It’s fair to say that people had just got the idea of what Amyris Biotechnologies was all about, when suddenly it became Amyris, Inc. There was subsidiary called Amyris Fuels, then there was an announcement that Amyris was exiting fuels.

There was Amyris, the Biofene company. Amyris and the ‘Fene economy. Just when everyone figured out what ‘Fene was, there was an announcement that Amyris would no longer focus exclusively on farnesene. (‘Fene appears to be the DJ identity of biofene or farnesene, though Puff Fene or P. Fene might have had more street cred).

Somewhere in there we had Novvi, the Amyris-Cosan JV for lubricants and high-performance oils. Then there was Amyris, makers of Biossance cosmetics. There was the Amyris µPharm discovery and production platform, announced this year, which sounded an awful like the Amyris Biotechnologies of old.

And we had the Paraiso plant, until it was the Brotas plant, and we had the Usina San Martinho JV to build more capacity, until we didn’t. It takes a lot of identity and costume changes to survive and thrive in the world of the advanced bioeconomy. Underneath, there were always the artists and the business minds.

So, you get the idea. There have been more Amyris identities than probably Mickey Rooney had marriages. But it never occurred to me, then or now, that the changes were a weakness. Change, that’s Amyris; the company is as hard to pin down as Madonna or Bob Dylan, and though occasionally Amyris is as popular on Wall Street as when Dylan went electric at the Newport Folk Festival in 1965, it’s the stuff of longevity: change that is, when the change is from purpose.

When Faster Gets Faster

In the Digest Universe, we place the company as a pure Design-Build-Test-Learn velocity player, one of the handful of Moore’s Law companies that just gets faster and faster and more automated.

If you walk through the Amyris labs in Emeryville, the first thing that strikes you is the shrinking footprint of technology and the people. Not that they have fewer people, or fewer machines. But the machines are immensely smaller and the people do more interesting things. Things you take for granted even in Big-Ticket, High-Priesthood academic labs — like, lots of undergrad and grad students moving a lot of stuff around in a physical way, the old analog assay. It’s like, gone.

What we see are designs scaled up to 200 liters in the lab and related pilot units, then transferred to Brotas, in 1000X scale-ups.

The Big Stumble

Just a few years back, Aymris transferred a tremendous amount of capital, hope, and R&D from demo-scale to full-scale at Brotas, and the scale-up stumbled, spectacularly. There was the hype, then the peril, right out of Apollo 13. “Emeryville, we have a problem.”

In this case, as the yeast were multiplied up to fill the big fermenters, they evolved slightly in each duplication step, 60 in all. Now, keep in mind that these organisms really weren’t designed by Nature to make this much farnesene. So, the mutations generally were in the direction of reducing farnesene production, and translating that carbon back into organism growth. The low-growth mutations would rapidly take over the fermenter. Amyris got day 1, day 2, day 3 normal, day 4 master alarms going off everywhere as the production dropped off.

So, Design-Build-Test-Learn until they found a way to suppress the growth of the mutations, by denying an amino acid (associated with the farnesene pathway) vital to organism growth. Eventually, problem solved. And the fast pace of 2011’s desperate innovation has become table stakes at Amyris 2015, or Diddy Amyris, or Amyris 5.0, or what you will.

Design the code, load the DNA, execute it into yeast, 120,000 permutations a month, of which 118,000 are random evolutions based around the 2000 designed projects. The focus? The search for farnesene yield.

As R&D Director Joel Cherry put it, “you can chase an enormous number of interesting scientific targets, most of which are valid and all of them have proponents. But at the end of the day, we needed to have focus, and for me it is a very simple equation. We buy sugar and we make product, and that makes yield the most important factor. So we focused on yield.”

To the extent today that the production organism has 80,000 new DNA base pairs, and 40,000 of the old ones knocked out — out of 12,000,000 base pairs in the original DNA. That’s around a 1% variation in around 10 years. And keep in mind, this is not the rate of mutation — this is the rate at which changes have become a fixed part of the production organisms. Successful evolutions, if you will.

Clocking Amyris Against the Pace of Evolution

Contrast that with the molecular clock hypothesis, which suggests that two bird species, to give an example, diverge at a rate of 1% per 500,000 years. 1% in 10 years, vs 1% in 500,000 years. At the rate Amyris is evolving its farnesene code, it would have evolved by a factor greater than the genetic difference between humans and chimpanzees, in less than 50 years.

Put another way, in about 1000 years, you could, extrapolating the math in ways that will surely get the Digest a nastygram from somewhere, replay the entire evolution of life on earth. At the current rate. Which is speeding up. Which is why working at Amyris has to be more interesting than working at the most cutting-edge gaming company.

Let’s take it a step further for a second. Let’s apply some Moore’s Law metrics to the speed of invention, at a genetic level. Let’s say the pace at which we can identify and deploy a new gene halves every two years. Is that possible? I don’t know. To be honest, here in Digestville we can’t tell you what the oil price will be tomorrow, exactly and for sure. Looking down the road 20 years in the world of genetic development, that’s about as easy as understanding the conditions beyond the event horizon of a black hole.

One thing we do know. The cost of a basic decoding of a genome is, in fact, coming down even faster than the velocity of Moore’s Law. So, it’s speculative but not without foundation.

In the basic math of our scenario, the entirety of the evolution of life on earth could be played out in a lab, in some number of years, in a matter of seconds.

Which is to say, evolution of target organisms, conducted entirely by robots, controlled by algorithms written by semi-sentient computers, running on processing schemes controlled by other semi-sentient computers. That is to say, computers that design-build-test-learn, with the emphasis on learning. Controlled in turn by humans, who generally are focused on guiding computer targets based on products of interest, and in charge also of designing and improving the process by which computers learn.

Consider that a time will come when you gladly take a daily capsule, which contains daily updates for your body — new defenses against discovered ills, or potential threats — based on scans delivered by advanced imaging and received and processed by these innovative biological engines. You’ll receive the cure before you show the symptom.

Velocity

Over at Amyris, you’ll see it happening now, if you look carefully enough. Not just at the plastic bottles of Muck Daddy, the Biossance creams, the flasks of renewable diesel, or the 140 million treatments for malaria by Sanofi using the underlying technology upon which Amyris is based.

Instead, look at the robotics, they’re spreading. The pace, which is quickening. The sense of mission, which has not diminished. For sure, we don’t see the enthusiasm on Wall Street.

But keep in mind, these are the guys who spent 20 years not figuring out Bernard Madoff — don’t be put off by the high salaries and flashy suits, Wall Street minds are a mile wide and a millimeter thick, and most of the brain mass there is devoted to guessing when the Fed will move on interest rates.

Instead, look not to Wall Street, or even Main Street, but look at Product Street. Firmenich, for example. No one’s partnering with Amyris for skin cream formula, or flavorings. They could come up with them in their own labs. They are partnering with Amyris for speed, pure velocity. When you crush timelines, products that were once in their “we can’t ever” fall over the corporate hurdle into the Department of Let’s Get Going.

That’s why Amyris, which once pinned all its hopes on Farnesene, has become instead the home of Farnesene and Friends. There are three molecules in production at Brotas now. Expect a fourth this year. Five, six, seven and eight — if you imagine those are well down the development pipeline, you wouldn’t be arrested on suspicion of smoking hashish.

Hear about Yield, think about Rate

But think upon this. Unless you are somewhere in the Bay Area and in the synthbio community, or working at a development partner where you can deep dive into hard data under the safe cover of DNA, most of what you will hear is coming from a public company, trying very hard to simplify and make more popular a story that they need to tell on Wall Street. As the stock prices goes, so does the company’s capital strength and its ability to fund its future.

So, most of what you will hear is not about “velocity” and “Design-Build-Test-Learn”. No one’s going to say anything to Wall Street about “assay noise” or “robotics platforms” or the pace of genetic manipulation. The story will be told mostly in terms of this-many-units of Muck Daddy and that-many-units of Biossance products, and that-many-tons of biofene sold to this-many-customers. Sometimes, you’ll hear specific brands, especially if they are blue-chippers. And you may hear about the company building more and more direct links to the retail customer where they see a niche and don;t currently have a partner who sees a place in the value chain for themselves. As in Biossance, for example.

All those are good things.

But you and I might take a moment and look beyond the weather of today and the weather of the next quarter — as we do in looking towards climate change and outcomes for the physical environment in the next 60 years. And you’ll see more lines of R&D, more products appearing, more yield improvements. It’s the More Law, even more than Moore’s Law. As in “faster”.

If it’s yield in the fermenter that matters to companies like Amyris — even more than rate and titre — it’s entirely the other way around in looking at the company. There, it’s rate. As in pace of innovation. Even more than yield — which is to say the result in products. You see, in the future, companies that produce one monster product each decade or so — that’s the old world of Yield.

But now it’s about partnership, and big companies look to small companies because they are nimble, and that’s about rate.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 26, 2015

Charitable Investments: How to Grow Your Portfolio While Making a Difference

by Mark Tan

The country is currently experiencing a shift toward more sustainable living. In addition to the wide array of whole food markets and hybrid cars available to today’s consumer, many people also want their investments working for the greater good. Although these investments have been around for more than a decade, the past few years have seen substantial growth in the areas of charitable investments, sustainable 401ks, and green bonds. No matter your passion, your financial portfolio can make a difference in the world, while still generating profit for you.

Charitable Investing 101

Charitable investments, also known as impact or sustainable investments, are those made in companies, organizations or funds with the intent to generate a measurable, beneficial impact on society. Rather than yielding exclusively financial returns, they seek to boost a positive social agenda, an environmental or medical cause, or back socially responsible companies.

Now Trending

The landscape of charitable investments has been growing steadily for the past few years. According to a recent study conducted by the Morgan Stanley Institute for Sustainable Investing, the total volume of these investments has nearly doubled over the past two years, growing from $3.5 trillion in 2012 to nearly $6.6 trillion in 2014.

The same study found that more than 70 percent of investors are interested in finding more charitable options and expect to see growth in the area over the next five years.

Financial Institutions. Some of the nation’s largest banking institutions have moved toward investing more assets in charitable causes. In 2013 when Morgan Stanley formed the Institute for Sustainable Investing, it did so with the goal of having $10 billion in client assets invested for social and environmental causes within the first five years. Chief Executive Audrey Choi said, “We fundamentally believe that considering the sustainability and impact of your investments is a business opportunity for us and our clients. We also think it’s a fundamentally strong value proposition to integrate thinking about large global issues in your investing decisions.”

Bank of America’s head of Global Wealth and Retirement Solutions Andy Sieg agrees, saying, “We think impact investing is an idea whose time has come in mainstream wealth management.”

Corporations. Many businesses are also beginning to see the benefits of focusing on sustainability and providing ethical investment options. Smart investing, good publicity, and a positive reputation will eventually lead to profit, but companies are also seeing improvement off the books.  A charitable giving program can improve employee engagement and company morale. When employees are pleased with their corporate culture it drives them to perform better.

Higher levels of employee engagement, coupled with more responsible and forward-thinking practices have led many of the nation’s largest corporations to work toward improving climate change, adopting sustainable production and operation practices, and addressing poor conditions within their organizations as well as in developing countries.

Some companies have taken responsible financing one step further from simply running their businesses and choosing their investments more responsibly, and begun helping their employees invest responsibly as well. The industry is beginning to see a trend in companies choosing their employee 401k programs based on sustainability ratings. These plans rate the sustainability of its participants’ holdings to ensure each dollar invested is done so ethically.

Millennials. While the nation’s banking institutions and business are shifting their priorities and providing the capital behind the charitable investing trend, the real driving force behind the growth is the millennial generation. While young adults may not be contributing large sums to charities each year, studies show that the majority of the generation has made donations, solicited donations and/or volunteered, and even more have the intention to do so in the future.

Bradford Bernstein, Senior Vice President of Wealth Management with UBS in Philadelphia thinks that experienced investors could actually learn something from the younger generation. “Millennials are the biggest force behind this trend of socially responsible investing,” he said. “[They] are interested in making a difference, and they choose to invest and buy from companies that are making a social statement.” It is this generation that will be running the banks and businesses in a few years. When their drive to make a difference meets the ability to put the capital behind it, the market with undoubtedly see even more exponential growth in this area.

Profit Concerns

Despite overwhelming growth and the desire to make a difference, there are still financial considerations to be made when choosing investments. Charitable investing is about finding the balance between investments and maximizing the social benefits of those investments. A portfolio built entirely on emotional and moral decisions is not likely to yield the same returns as one that focuses solely on appreciation and growth.

The common misconception is that charitable investments do not perform as well as others. It may be true that the returns may be lower than in some more traditional investments. However, the drive and passion behind the causes being funded by these investments can lead to greater returns.

The Forum for Sustainable and Responsible investment conducted a study in 2012 that found that at the time, one out of every nine dollars under professional management in the country was invested according to sustainable strategies. The report found that charitable investing grew 486 percent between 1995 and the date of the study, while other assets under professional management only grew 376 percent during that time period. The responsible investments saw greater growth in response to social changes in the country, government backing, and through a desire and a need to affect high-profile issues, such as climate change.

As is always the case when building a financial portfolio, certain types of investments may be more risky than others.  Choosing stocks based on the organization’s social responsibility, for example, may not be as productive as buying based on appreciation. Because of their limitations, stocks focused specifically on making a difference often are not very growth-oriented.

Identifying Responsible Investments

Mutual Funds. If you are ready to start making your money work for more than just returns, socially responsible or faith-based mutual funds are a great starting point. It can be difficult to identify sustainable and ethical companies. There may be a false perception that a certain company would not do anything immoral, but mutual fund managers generally have done their due diligence. These funds are often designed to favor companies that meet certain criteria, cover companies with high social, environmental and governance standards and actively avoid companies with unsustainable business practices.  

Green Bonds. For those investors who want to balance their portfolio to include more stable investments, green bonds can round out a portfolio while encouraging environmental sustainability. Green bonds are typically issued by federally qualified organizations for the development and maintenance of brownfield sites – areas of land that are underutilized or underdeveloped. Other green bonds aim to raise funds to support lending for projects that seek climate change or renewable energy.

Due Diligence. When investigating companies be wary of those that use good deeds to conceal bad behavior. Instead focus on companies where environmental and social concerns rank high among the corporation’s priorities, like Google (GOOG).

In such companies the executives often make substantial contributions to the company-backed causes and truly live their values.

Identify companies that provide sustainable and helpful goods or services. These companies conserve energy, operate efficiently, and design products and services using recycled materials that save the user money and make their lives better. Companies such as Nike and Johnson Controls (JCI) fit this description.

Closely monitored working conditions, strong safety and health standards, and high employee satisfaction are also good indicators of a responsibly-run organization. Employee satisfaction and engagement ratings do not lie and can help identify those organizations with an ethical mission statement, such as Apple.

Last, but not at all least, seek out investments in businesses with a long-standing reputation for product sustainability, transparency, and leadership. Panera, for example, prides itself on its history of fair animal treatment, using local produce, and adding no artificial ingredients to its healthy menu items. Strong leadership with strong ethical beliefs can ensure that your money will be put toward a good cause.

Getting Started

The first step toward building a sustainable investment portfolio is to decide how to blend your finances and life views.

For example, some investors may view Coca-Cola as an organization that mass produces sugary, unhealthy drinks to the American public, while others may see a global clean-water and efficiency program.

Define what causes and cultures are important to you and begin investigating companies that share your vision, but that does so while keeping an eye on growth. Experts suggest starting slowly, and finding a guide.

About the Author
Guided by his strong faith and charitable instinct, Mark Tan is committed to helping others live happy, virtuous lives.
At Thrivent Financial, Mark assesses his clients’ unique situations and creates financial plans customized to their needs. He empowers his clients to make informed decisions to stay on track and reach their goals. His sophisticated approach to financial planning helps clients assess multiple financial goals and concerns.  As part of a team of professionals that share his commitment to service, Mark has the opportunity to work one-on-one with clients and also access additional resources and knowledge from of members of his team when needed. Contact Mark at mark@mark-tan.com. To view or download the entire eBook, visit http://www.mark-tan.com/.

August 25, 2015

Gevo and Butamax Make Peace

Jim Lane

Butanol-peace1[1].jpg In Delaware and Colorado, Gevo (GEVO) and Butamax have entered into worldwide patent cross-license and settlement agreements, ending a patent dispute related to technologies for the production of bio-based isobutanol. This settlement ends all of the lawsuits and creates a new relationship between the companies, aimed at leveraging each other’s strengths and accelerating development of competitive supply for bio-based isobutanol.

The cross-license agreement grants both parties patent licenses to all fields for isobutanol and is structured to develop robust and sustainable isobutanol markets. The license will be royalty bearing for Butamax in certain fields and royalty bearing for Gevo in other fields. There are also a number of fields that are royalty-free for both companies. Both parties can sell up to 30 million gallons per year royalty-free into any field.

More on Gevo and Butamax

Butamax: The Digest’s 2015 5-Minute Guide

Gevo: The Digest’s 2015 5-Minute Guide

8-Slide Guides

Biobutanol breakout: The Digest’s 2015 8-Slide Guide to Gevo

Biobutanol breakout: The Digest’s 2015 8-Slide Guide to Butamax

Butamax to lead on road transport, Gevo on aviation

Butamax will take the lead role in developing the market for isobutanol as an on-road gasoline blendstock. This will include progressing ongoing programs to gain required EPA approvals for mainstream use of 16% isobutanol as a gasoline blend component. Butamax has also conducted joint research with Underwriters Laboratories (UL), which has demonstrated that these blends can be used safely in fuel storage and dispensing equipment meeting current UL standards. It is expected that UL’s guidance will clear the way for state government agencies to consider and approve the dispensing of biobutanol-gasoline fuel blends in the U.S.

In parallel, Gevo will lead development of the jet fuel market. Gevo has been producing and selling alcohol-to-jet fuel (ATJ) derived from isobutanol since 2011. To date, Gevo’s ATJ has been produced at its demo biorefinery in Silsbee, TX, using isobutanol produced at its Luverne, MN, fermentation facility. The company has successfully flown tests flights with the U.S. Air Force, U.S. Army, and U.S. Navy and now expects to secure the MIL-SPEC certification (JP-8 and JP-5) enabling bids on future RFPs for renewable jet fuel by the Defense Logistics Agency. Gevo also intends to begin test flights with the commercial aviation industry, including Alaska Airlines, following receipt of ASTM International certification, expected before the end of 2015.

The cross-licensing

While Butamax and Gevo have cross-licensed all of their patents for making and using isobutanol, both parties will have their own biocatalyst and process technologies. Both Butamax and Gevo are free to license their respective technology packages to third parties. A third party licensee would be granted a sub-license, and would be subject to terms and conditions that are consistent with the cross-license between Butamax and Gevo.

“We are very pleased to have reached this amicable and fair settlement. Setting up the marketing relationships, as we have done, brings to bear the capabilities of each of the companies,” said Dr. Patrick Gruber, Gevo’s Chief Executive Officer. “We very much look forward to developing a very large, growing and profitable isobutanol market in conjunction with Butamax.”

“The aim of these agreements is to accelerate development of markets for bio-based isobutanol,” commented Butamax Chief Executive Officer Paul Beckwith. “This will create exciting opportunities for ethanol producers to expand their businesses by becoming isobutanol producers, at the same time enabling the most competitive isobutanol supply for customers.”

Both parties have agreed to keep all details relating to these agreements confidential, other than what is disclosed in this press release and the attachment, or is otherwise required to be disclosed by law.

Analyst reaction

Cowen & Company’s Jeffrey Osborne writes:

The ongoing litigation has been a source of investor concern as it has led to increased operating expenses, higher cash burn levels and also likely delayed any license agreements in the U.S. given the ongoing litigation. We see the new agreement, signed this weekend ahead of the trial that was slated to start today as a long-term positive for the company. We are not making any changes to our estimates at this time.

This patent cross-licensing agreement will aim to leverage each company’s respective strengths to drive forward the development of bio-based isobutanol with the aim of developing a robust market for isobutanol. Per licensing agreement, Butamax and Gevo will be licensed to all fields, however, certain fields will be royalty bearing only for one of the respective companies and some fields will be royalty free for both companies.

Factsheet: Butamax and Gevo Patent Cross-License and Settlement Agreements

Butamax and Gevo have agreed to global settlement and cross license agreements resolving the ongoing intellectual property dispute and all current district court litigations will be dismissed by the parties.

Under the agreements Butamax and Gevo have licensed all of their respective patents to each other, with rights to sub-license their respective technologies.

Both parties are free to sell up to 30 million gallons per year royalty-free into any field, after which, certain fields bear royalties per the table image:

The parties have agreed to leverage each other’s regulatory approval and market development activities in order to accelerate the pace of market growth and to reduce duplication. Specifically:

Butamax will focus on gaining required approvals to support direct blending of bio-based isobutanol into on-road automotive gasoline, and is expected to market isobutanol for this application on behalf of both Butamax and Gevo.

Gevo will focus on gaining required approvals to support use of renewable ATJ made from bio-based isobutanol, and is expected to market isobutanol for this application on behalf of both Gevo and Butamax.

The licensing technology packages offered by Butamax and Gevo will differ at least as follows:

The parties will not exchange or utilize each other’s proprietary microorganisms.
The parties’ proprietary microorganisms will utilize different enzymes in the biobutanol pathway.
The parties’ process engineering designs will include different product recovery systems

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 24, 2015

SFC Energy: Growing Remote Power

by Debra Fiakas CFA

Fuel cell developer SFC Energy, A.G. (F3C.DE) recently came calling on money managers in New York City.  The company’s chief financial officer Steffen Schneider wants U.S. investors to know SFC has more going for it than simple fuel cells.  True enough the company sells fuel cell components, but it is also capable of delivering complete off-grid energy solutions and integrating full systems.

Schneider talks up SFC’s sterling customer list, including Volkswagen, Siemens, Schlumberger, Shell Oil, Arch Coal, Conoco-Phillips, and other industrial users.  Then there are government agencies such as NATO, the FBI in the U.S. and the Israeli military as well as SFC’s home country of Germany.  It appears customers have been doing more than just sampling.  Over the last five years sales have increased four times, reaching Euro53.6 in fiscal year 2014.  That translated to about US$75.0 million at currency rates at the end of the year.

A little over half of SFC’s business is with customers in the oil and gas industry, where production and distribution facilities are often located far away from electrical grid connections.  Local energy sources are vital for power controls, data acquisition equipment and other mission critical systems.  Harsh weather conditions often preclude the effective use of solar or fossil fuels.  SFC estimates the opportunity for off-grid oil and gas facility power sources is valued at US$11.5 billion, of which US3.7 billion in located in the U.S.
SFC+Emily[1].png
Other industries need power in remote locations as well, such as telecommunications, agriculture and agriculture.  Wind and solar energy producers also need power solutions for facility control functions.  Then there are the remote activities of the military and law enforcement where power is need for communications, computing and monitoring equipment.  SFC is prepared to build custom engineered solutions, but some customers can choose standard units such as the EFOY ProEnergyBox or EFOY ProCube.  There are also the EMILY and JENNY mobile solutions that give the military or government agencies lightweight and reliable energy packs for personnel deployed in remote locations.   The military and industrial markets represent just over a third of total sales.

SFC+Efoy[1].jpg The balance or about 8% of total sales is to consumers.  There is growing demand for power sources for recreational vehicles, boats or homes located far away from power lines.  SFC offers standard solutions it calls the EFOY Comfort and EFOY GO to provide lightweight, portable units for on-demand power.

SFC stands out among fuel cell developers.  The company's fuel cells use direct methane technology rather than relying on hydrogen reformed from natural gas.  SFC says this feature improves the return in investment for their fuel cell solutions, since methane is easier and cheaper to handle than hydrogen.

Besides its product technology SFC has been shrewd about its competitive positioning, using acquisitions to bolt on complementary technologies to further distinguish its power solutions.  In 2013, SFC acquired Simark Controls Ltd., a provider of instrumentation, automation power solutions for the oil and gas industry.  Based in Calgary, Alberta, Simark is well entrenched in Canada’s oil and gas industry.  Its rich experience in custom engineering is now giving SFC an edge in pitching customers in the oil and gas industry.  In 2011, the PBF Group B.V. was acquired for its electronics technology that has been critical in helping SFC properly integrate its fuel cells into established conventional electronics infrastructure and devices.
 
SFC has not been as successful in building profits as it has sales.  The gross profit margin has shrunk to 29.2% in 2014 from 39.1% just two years earlier.  Unfortunately, the trend has continued in the first half of 2015.  The company has yet to achieve profitability, but generated positive cash earnings in 2014, as measured by EBITDA.  The company had US$4.3 million in cash on its balance sheet at the end of June 2015, and US$11.6 million in working capital to support operations.

U.S. investors who have an interest SFC will need to acquire shares on a Germany’s Frankfurt exchange.  SFC has not registered its shares in the U.S.  That should not be a particular problem for the investor who is willing to do a bit of work.  SFC Energy is fully reporting, providing German authorities with the same sort of disclosures required in the U.S.  SFC Energy even provides English translations of its financial reports on the corporate website.  For U.S. investors an interesting feature of European financial reports is the Forecast Report section, which details management’s projects for the next fiscal year sales and earnings.
Shares of SFC Energy have drifted down over the last year after experiencing a dramatic increase in value in 2014.  The stock fell through its 50-day moving average near the beginning of the current year and has failed to lift above it since.  Dwindling trading volume suggests that the current weakness in the stock has been more the result of limited demand rather than a rush to the exits. 

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.

August 21, 2015

Yingli Could Be Gone In A Year

Doug Young

Bottom line: China is likely to see 1-2 of its weakest major solar panel makers close over the next year in a campaign led by Beijing, with Yingli as the most likely candidate to make the first exit.

A couple of new reports from the Chinese solar sector are shining a spotlight on consolidation that’s still needed before the industry can return to health. One report cites the Ministry of Industry and Information Technology (MIIT), the sector regulator, saying more such consolidation is necessary and the pace should accelerate. The second is a technical announcement from Yingli (NYSE: YGE), the weakest among China’s major panel makers, saying it has fallen out of compliance with US listing requirements due to its low stock price.

The appearance of these 2 news items on the same day is purely coincidence, even though both are related to the same phenomenon. That phenomenon saw global solar panel production explode over the last decade, as scores of new plants opened in China in response to policy directives and other incentives from Beijing.

As a result, China now supplies over half of the world’s solar panels, and global prices have remained wobbly for much of the last 4 years due to oversupply. A sharp drop in prices back in 2011 led to an initial round of consolidation that saw major players Suntech and LDK go bankrupt and their assets get acquired or shuttered. But clearly some more consolidation is still needed to further reduce supply.

The MIIT is keenly aware of that fact, which has prompted it to issue a statement saying it expects consolidation to accelerate, and for the nation’s strongest players to lead the way for the entire sector. (English article) It adds that despite the state of oversupply, Chinese output of polysilicon, the main ingredient used to make in solar panels, actually grew 16 percent to 74,000 metric tons in the first half of the year.

That would seem to imply that the MIIT is quietly criticizing Chinese panel makers for boosting output even during a weak market, and hints the regulator may step in to forcibly close some weaker producers or at least force them to cut back output. This kind of situation is quite common in China, where manufacturers of raw materials like steel and aluminum actually boost output during a weak market, even if it means selling at a loss.

Acting on Government Orders

They usually behave in such irrational manner under direct or implied orders from their local governments, which want the increased activity to help them meet their economic growth targets. Such orders also carry the implicit guarantee that the government will step in to help companies if they run into financial difficulties by offering measures like loans from local branches of big state-owned banks.

Yingli is one such company, and gets big support from its local government in the industrial city of Baoding where it’s a major employer, even though the company is losing money. Unlike its peers, most of whom managed to return to profitability after several years of losses at the height of the earlier downturn, Yingli has never emerged from the red over the last 5 years.

The company’s financial struggles prompted it to issue a statement earlier this year saying its existence as a business could be in danger, though it later said that investors had misinterpreted that statement. (previous post) Nonetheless, the statement prompted a sell-off of Yingli stock, and the shares have traded at $1 or less since mid-July.

That prompted Yingli to issue another statement saying it had fallen out of compliance with US trading rules that require a company’s share price to remain above the $1 level. (company announcement) Technically Yingli could be forcibly de-listed due to this violation, though companies in such situations can usually return to compliance using a reverse share split.

Still, the company’s troubled situation and shrinking market value — now worth just $174 million — make Yingli an ideal candidate for the kind of consolidation envisioned by the MIIT. Accordingly, I wouldn’t be surprised to see the MIIT quietly engineer a deal for one of the stronger panel makers to make a bid for Yingli, which could quietly disappear by this time next year.

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.

August 20, 2015

A Little More Respect for Lime Energy

by Debra Fiakas CFA

Last week Lime Energy (LIME:  Nasdaq) reported exceptional sales growth in the quarter ending June 2015.  Revenue from the company’s energy efficiency solutions was $32 million, increasing and impressive 135% compared to a year ago.  Sales were boosted beginning by the March 2015 acquisition of EnerPath, a provider of software solutions for utility energy efficiency.  However, several of the company’s utility programs were expanded and that drove organic sales as well.

Is it time to give Lime some new respect?

In the renewable energy sector, efficiency programs are often overlooked as a contributor to climate and energy relief.  Lime Energy made its bones in the efficiency sector with programs for small- and medium-sized businesses to save on the cost of lighting, space heating and cooling, equipment operation and water heating.  The acquisition of EnerPath gives the company a bigger stake in utility-based programs.  
Sales in the twelve months ending March 2015, were $64.8 million, resulting in a net loss of $5.3 million or $1.01 per share.  On its own Lime Energy had yet to achieve profitability.  What is more, operations still required cash resources.  The quarter ending June 2015, was the first quarter that EnerPath contributed for the full period.  Thus it appears the company’s new annual revenue run-rate is around $124 million.  In the June quarter the combined companies reported a small operating profit and earnings adjusted for non-cash expenses was a respectable 5.3% of sales.  It appears that EnerPath brings a more effective operating structure to Lime. 

Lime Energy is a small company with a market cap of $35.5 million and trading volume in its stock is only about 10,000 share per day.  It has been overlooked as a investment in the modern energy industry.  LIME trades at 0.6 times sales, which could be a bargain for a company that just doubled in size.  It is also very interesting for an operation that is approaching profitability.


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.

August 19, 2015

Fretting Over FutureFuel

by Debra Fiakas CFA

Earlier this week FutureFuel Corporation (FF:  NYSE) reported financial results for the second quarter ending June 2015.   Sales of the company’s biodiesel and specialty chemical products increased 53.7% to $104.6 million compared to the prior-year quarter when reported revenue was $68.0 million.  The company delivered a profit as usual, but traders appeared unimpressed.  The stock gapped lower on the news and two days later set a new 52-week low price.  Granted net income was lower year-over-year by 30.9%, coming in at $3.8 million or $0.09 per share. 

A closer look at the sales mix reveals what has FutureFuel shareholders gnawing their nails.

Sales of the company’s various chemical products were essentially flat in the June quarter after registering a 13.0% leg higher year-over-year in the March quarter.  The June quarter plateau should not have come as a surprise given that the chemicals segment has been erratic at best, shrinking in 2013 after registering weak growth in 2012.

Chemical products include an diverse mix of herbicides, industrial formulas and a bleach activator.   Historically, the bleach activator has been FutureFuel’s bread winner, responsible for 15% to 20% of total sales over the last few years.  In the June quarter sales of this product dropped to just 6% of total sales.  The bleach activator is used in powdered laundry detergents, which have lost market share to liquid detergents in recent years.  FutureFuel’s primary customer for this product is terminating its order arrangement by the end of 2015.  Management has claimed negotiations are still underway, but if sales in the June quarter are any indication, a new supply agreement is not likely.

Orders for other chemicals helped make up the short-fall in bleach activator revenue.   Sales volume of proprietary herbicides doubled in the June quarter compared to the same quarter last year.  However, revenue increased only 75%, which the company attributed to ‘product mix.’  Apparently, certain contributors to the elevated volumes were lower priced items.  Revenue also increased 25% for intermediate chemicals used in the production of antimicrobial solutions and other custom chemicals.  As encouraging as these revenue pick-ups might be, the loss of a major customer for a principle product is certainly a ‘fret’ worthy turn in events.

This brings us to the biofuels segment, which contributed $71.9 million in total sales to the June quarter, representing 3.6 times biofuel revenue in the previous quarter and 2.0 times revenue the year-ago period.  Increased sales through common carrier pipelines offset volume declines in the June quarter.  The revenue accomplishment should have shareholders squat jumping high-fives!  Unfortunately, profits in the biofuel segment were nothing to celebrate.

FutureFuel reported a gross profit margin of 10.2% in the biofuel segment in the year 2014, and the profit margin increased to 12.3% in the first quarter this year.  However, in the June quarter pricing pressures got the best of FutureFuel, gobbling up profits and leaving the company with a profit margin of negative 6.2%.  In other words, it cost FutureFuel more to produce its biofuel products than it recorded in sales.  Management cited erosion in selling prices for transportation fuel and uncertainly in U.S. regulatory mandates for renewable fuels.  

Few if any analysts or economists are predicting a near-term recovery in crude oil prices.  What is more, in the lead up to elections no one should hold their breath waiting for Congress to set policy on much of anything let alone renewable fuels standards.  Thus it seems shareholders could expect more of the same volume and profit dynamic in coming quarters for FutureFuel’s biofuel segment.  This is definitely something to fret about.

Top-line stress is probably not the only factor sending FutureFuel shares into free fall.  Operating cash flow reveals more reasons for FutureFuel shareholders to worry.  The company generated $41.1 million in operating cash in the first three months of 2015.  However, in the June quarter FutureFuel actually used $6.2 million of its cash resources to support operations.    This is not a positive turn of circumstances.  While the company saved some cash by drawing down inventory by $8.5 million in the quarter, approximately $7.2 million in reported sales got bogged down in accounts receivable.  Another $7.9 million in cash was lodged during the quarter in an income tax receivable.  The company also paid down accounts receivable by $980,000. 

The ebb and flow of working capital accounts only creates temporary cash flow problems.  For FutureFuel it is really the quality of earnings that should worry shareholders.   The company reported $3.8 million in net income in the quarter, but a total of $1.8 million or 47% came from a mix of non-operating sources:  $627,000 came from a deferred income tax benefit, $770,000 from increased value in marketable securities, and $450,000 from the sale of investments.

FutureFuel has traded to a record low for the year, taking the price to an enticing 7.8 times trailing earnings.  The dividend yield is a very interesting 2.4% at the current price.  With $142.0 million in cash and another $85.9 million in marketable securities on the balance sheet, the company appears capable of withstanding a few more quarters of negative operating cash flows before the dividend would come under scrutiny.

For investors with a long-term time horizon, the dividend yield could be a good reason to fret less about the last quarter and look more carefully at the company on the basis of annual sales, profit margins and cash flows.  The temporary influences that make the quarter results look exceptionally good or bad get smoothed out.  The erosion in profit margins cannot be escaped by looking at full-year comparisons, but a dividend check helps make worthwhile the wait for resumption in sales growth.

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.

August 18, 2015

Propel Fuels' Sales of Neste Renewable Diesel Jump 15x

Jim Lane

West Coast renewable fuel retailer says the launch of 100% drop-in renewable diesel has spiked sales on a per-outlet basis — 5X jump in renewable content, and 3X jump in gallons sold.

In California, Propel Fuels is reporting a 15X jump in per-outlet sales of renewable fuel for diesel engines, based on a 3X increase in gallons sold of its new Diesel HPR fuel and 5X increase in renewable content for Diesel HPR (100% renewable content, vs the 20 percent renewable content in B20 biodiesel, which Propel formerly sold).

With the news, Propel is expanding distribution to Southern California, adding 13 new locations in Los Angeles/Orange County (Fullerton, Harbor City, La Mirada, Lakewood, Norwalk, Torrance and Wilmington), San Diego (Chula Vista and Kearny Mesa), and the Inland Empire (Arcadia, Claremont, Hemet and Ontario). Propel debuted Diesel HPR at 18 locations in Northern California in March.

Diesel HPR is a low-carbon, renewable diesel fuel that meets petroleum diesel specifications and can be used in any diesel engine. Utilizing Neste’s [NEF.F] NEXBTL renewable diesel, Diesel HPR is designated as ASTM D-975, the standard for all ultra-low sulfur diesel fuel in the U.S., and is recognized as “CARB diesel” by the California Air Resources Board even though it contains no petroleum.

What’s the secret?

Propel-3For one, everyday low prices. The US Energy Information Administration is reporting an average retail diesel price of $2.96 in the state of California, for the week of August 10. The average retail price for Propel Fuels Diesel HPR, for 12 of its new locations in Southern California is $2.55 per gallon (Propel’s Torrance location is reporting a $3.89 per gallon price, a real outlier).

By the way, Propel’s 100-octane E85 is averaging $3.07 per gallon in Southern California, compared to $3.56 for 87-octane regular and $3.81 for 91-octane premium — a discount of 14 percent to regular and 19 percent to premium, not a compelling discount given the fuel economy differential.

(Note, for the discounts reported above, we’re comparing local (Southern California) Propel prices to a statewide average, so it’s not a precise apples-to-apples comparison.)

California retail fuel prices 081715

The other secret

Propel looks cool, and has good locations they’ve “re-thought the American fueling station”, as Fleetowner.com put it, offering customers a chance to offset their carbon, as well as re-fueling. In short, they’ve gone some lengths to change the retail mindset.

Propel Fuel

The secret in the Fuel

It’s not a top-secret fact, but it’s not widely known that Neste is supplying its NEXBTL fuel to Propel. Interested to learn more about that fuel, and the technology behind it? Our 8-Slide Guide to Neste is here.

Renewable diesel’s low-carbon fuel performance

According to the U.S. Department of Energy’s Alternative Fuels Data Center, renewable diesel’s high combustion quality results in similar or better vehicle performance compared to conventional diesel, while California Air Resources Board studies show that renewable diesel can reach up to 70 percent greenhouse gas reduction compared to petroleum diesel, and reduces nitrogen oxides (NOx) and particulates (PM 2.5) versus petroleum-based diesel.

Commercial and bulk fueling options

In addition to new retail locations, Propel has launched Diesel HPR commercial and bulk availability for business and government fleets statewide. Delivered in bulk to businesses and agencies, Propel’s HPR is bundled with the company’s CleanDrive emissions accounting software, allowing fleets to easily quantify and report GHG reductions and air quality benefits.

Where to find it, pricing, and customer testimonials

A complete list of locations is also available here. Directions and real-time pricing can be found on Propel’s mobile app available in the Android and Apple app stores. Customer testimonials are available here.

Reaction from stakeholders

“Drivers across Southern California can now experience the power, performance and value of Diesel HPR, while making a positive impact on the air quality of the region,” said Rob Elam, CEO of Propel. “Any diesel vehicle can fill with Diesel HPR since it meets the ASTM D-975 quality standard for petroleum diesel.”

“It’s good to see this high quality, low-carbon diesel coming to corner gas stations across Southern California,” said Mary D. Nichols, Chair of the California Air Resources Board. “This renewable diesel will now be conveniently located for all consumers, and joins a growing suite of new, cleaner transportation fuels in California thanks to our Low Carbon Fuel Standard and forward thinking companies like Propel.”

“We congratulate Propel Fuels on their initiative to introduce Diesel HPR to consumers in California and are excited to be their supplier of choice with our NEXBTL renewable diesel,” said Kaisa Hietala, Neste’s Executive Vice President of Renewable Products Business Area. “NEXBTL renewable diesel reduces emissions as well as enhances engine performance leading to lower maintenance and service costs.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 17, 2015

Green Bonds From Terraform Global, SolarCity, and Hannon Armstrong

by the Climate Bonds Team

Yieldco TerraForm Global (GLBL) issues a whopping $810m green bond (7 years, 9.75%, B2/B+)

TerraForm Global Operating has issued an $810m green bond, with 7-year tenor, 9.75% coupon and ratings of B2 and B+ from Moodys and S&P respectively. TerraForm Global is a recent yieldco spin off (IPO last month) of SunEdison (SUNE) group (have a look here if the yieldco concept is new to you).

Terraform Global owns and operates renewable energy assets - solar, wind and hydro - in emerging markets, in the following locations:

  • Solar: China, India, South Africa, Honduras, Uruguay, Malaysia and Thailand.
  • Hydro: 6 projects in Peru (for 336MW aggregate capacity), as well as 3 small operational hydro projects in Brazil (aggregate capacity of 42MW).
  • Wind projects: China, Brazil, South Africa, India, Honduras, Costa Rica and Nicaragua.

The emerging market focus sets Terraform Global apart from its sister-yieldco Terraform Power Operating, which has so far issued 3 bonds for a total of $1.25bn, but who only has one emerging market project, in Chile. Their renewable energy power plants are predominately in the US, with some assets in Canada and UK.

Terraform is really showing the potential for yieldcos to issue green bonds to finance renewable energy in a wide range of countries – way to go!

SolarCity (SCTY), the US largest solar developer, comes to the green bond market yet again with $123.5m of solar asset-backed securities. The 7-year tenor green ABS is split across two different ranking tranches; the larger $103m senior A-rated tranche has a 4.18% coupon and the smaller $20m junior tranche, rated BBB, with a 5.58% coupon. Great to see solar-backed ABS moving up the credit ratings!

SolarCity has been a pioneering company in the solar securitisation space; in November 2013, they were the first corporate to issue a fully solar-backed ABS, and several more deals followed in 2014.

This latest deal from SolarCity adds to other recent green ABS deals, with July seeing green ABS issuances from both RenewFund and Toyota.

Hannon Armstrong (HASI) announced it will issue another round of green asset-backed securities (it calls them Sustainable Yield Bonds), this time for $125m and 25-year tenor. As its previous issuances of green asset-backed securities, they will be backed by renewable energy and energy efficiency assets. The ABS offering will be offered by an indirect subsidiary of Hannon Armstrong.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

August 14, 2015

Green Plains Bets on Ethanol Recovery

by Debra Fiakas CFA

Last week the Chief Executive Officer of Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq), Todd Becker, revealed during conference calls following its quarter earnings report that the company has been in discussions to sell ethanol to industrial users in Mexico.  It is news that could be music to shareholders ears.  U.S. storage tanks are brim full of ethanol as producers like Green Plains stock pile inventories waiting for better selling prices.  Green Plains has made claims to Mexico sales before, but has never revealed customer names or volumes.  None were named this time.

Can Mexico rescue Green Plains from the ethanol doldrums?

Mexico reportedly bought 4% of U.S. ethanol exports in 2014.  That is not an impressive all things considered.  Canada and Brazil are more important and larger customers for the U.S. ethanol industry.  In 2014, Canada bought over 1.2 billion liters of Yankee ethanol and Brazil placed orders for another 375 million liters.  Even the United Arab Emirates is a more significant importer of U.S. ethanol, at least in terms of the rate of growth in purchases by that country.
However, the pace of purchases from our good friends down south could accelerate.  At the beginning of 2015, Pemex, Mexico’s state-owned oil company, announced its intentions to begin selling gasoline mixed with ethanol as part of a plan to reduce emissions.  However, Pemex let contracts to source ethanol from domestic producers not U.S. producers.  Two of the initial contracts were cancelled due to ‘irregularities’, revealing the difficulty Mexico might be having in cultivating an effective domestic ethanol industry.  Perhaps that will leave open a door for enterprising U.S. exporters.

Of course, ethanol is only one part of the picture.  Ethanol production results in several by-products, including corn meal, corn oil and distillers gains among other agricultural products.  Exports of ethanol production by-products continue to be robust and industry analysts are predicting strong long-term growth.  Distillers grain (DDGs) exports by U.S. producers were $3.4 billion in 2014 , setting volume and value records.  China is the largest importer of U.S. DDG production and Mexico comes in second place.  The countries in the European Union favor U.S. corn gluten feed and Indonesia is the largest customer for corn gluten meal.  About three-quarters of U.S. high-fructose corn syrup ends up in Mexico.  The in the Middle East and Africa buy about two-thirds of U.S. corn oil production.  Corn meal, feed and oil exports were valued at around $1.6 billion in 2014.
Besides the usual ethanol production by-products, Green Plains also earns fees for ethanol marketing, trading and logistics services provided to third-parties.  Sales of by-products and services represent about 70% of Green Plains’ total sales.

Green Plains reported $3.2 billion in sales in the twelve months ending June 2015, providing net income of $88.3 million.  Cash flows of $93.8 million for the twelve-month period are probably a better barometer for an ethanol producer.  Free cash flow after capital expenditures was $33.5 million, enough to support a dividend near $12 million per year and meet debt payment obligations.
Despite the struggle that ethanol producers are facing at this point in the industry cycle, Green Plains appears to have the balance sheet to see it through to better times.  At the end of June 2015, the company had $527.9 million in cash on the balance sheet.  Total short- and long-term debt was $672.8 million.  

Green Plains stock has been in a free fall for the past two months as investors anticipated the June quarter results.  The company reported a profit in the quarter, but not enough to meet expectations for a far more robust performance.  Perhaps management should spend more time simply producing sales and profits and less time pumping up investors for sales that have not been made yet.

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.

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