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What’s Going On With Beacon Power and RailPower Tech?

Two diametrically-opposed stories for this post: Beacon Power [NASDAQ: BCON] and RailPower Tech [TSE:P]. The latter is up 134% on its week-ago closing price, while the former is down nearly 22% over the same period.

Beacon Power Corp

I wrote about Beacon Power a little while ago. The recent drop in share price is due in large part to the fact that Beacon announced, last Friday (Dec. 29), a glitch at one of its testing facilities in Massachusetts. This was followed by an analyst at Merriman Curhan Ford downgrading the company from Buy to Hold. Almost immediately, the stock began experiencing strong downward momentum on high volumes. 2.44 million shares changed hands today – compare that to a 3-month average of around 426,000.


I poked around but was unable to find much substantive info that would allow me to properly appraise the problem. Maybe some of you have info that you could share with the rest of us?

So far, Beacon’s tests in California and NY have gone well. As I told a reader who asked about this earlier, I think it is a tad early to panic and I haven’t dumped any of my stocks yet. Nonetheless, I wouldn’t buy any until I know more about the exact impact this problem will have on the company’s plans to begin generating revenue from its flywheel-based grid regulation system. Beacon hopes to begin offering its grid regulation services on a commercial basis in the 2nd half of ’07.

The company’s technology appears to have been well received by California's regulators, and, as I mentioned in my last post about them, this could be a 5-year affair saddled with volatility. Overall, however, I still buy their story, and I think the increasingly rapid deployment of renewable energy in California and other US states will create strong demand for Beacon’s applications. Anyone who's experienced rolling blackouts or brownouts in the past few years knows that grid regulation will be a big deal going forward.

RailPower Tech

The RailPower story is, as indicated initially, completely different. RailPower makes diesel-powered hybrid locomotives that are overall markedly more efficient and less polluting than conventional locomotives.

This is a stock that had been trading consistently above $4 on the TSE since the 2nd half of 2004. 2006 was nothing short of a misery year for RailPower; it went from a 52-week high of $6.67 to a low of $0.45 a few weeks ago. The stock began slowly rebounding in mid-December after the company announced it had managed to get out of a money-loosing contract that would have cost it around $17 million (C$20 million).


The real action began, however, on Dec. 27, when the stock closed 17% higher than its day-before closing price, and volumes reached 1.4 million shares. Volumes have averaged 4 million shares since Dec. 27, compared with a 3-month average of around 1 million. As mentioned in the intro, the stock gained 134% between Dec. 27 and today. I should mention that RailPower was actually down 5.75% today, probably on profit taking.

Other than the contract cancellation, I couldn’t find anything else that would account for this very sudden return to favor of RailPower. This is a company which I have been watching from afar for about a year, without ever really looking into it seriously. There was nothing about RailPower that made it stand out from the cleantech crowd, as far as I could tell; it has a really cool technology but is having a hard time turning it into strong sales and operating cash flows. I suspect, however, that it may only be a matter of time. If any of our readers have good insight about this company, it would be interesting to hear it.

(DISCLOSURE: I am long Beacon Power)



was posted on AltEnergyStocks.com.


       

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Comments

There was an article in the Wilmington Advocate about the 'Malfunction'

http://www.townonline.com/wilmington/homepage/8999030508398575615

Here is the relevant excerpt:

"An industrial “explosion? had fire apparatus from two towns rushing down to 234 Ballardvale St. a minute after 2 p.m.

The blast at Beacon Power Company was the result of an “industrial accident,? according to Stewart. A test run of the company’s main product, a high tech flywheel, malfunctioned due to a miscalculation in pressure. The resulting blast destroyed the subterranean testing facility.

Doors were blown off hinges and ceilings buckled throughout the building. The structure was filled with an unknown dust from the accident, forcing firefighters from Wilmington and North Reading to don breathing apparatus.

Yet no Beacon Power employee was injured by the blast.
Stewart made calls to the town’s building inspector, the Occupational Safety and Health Administration and Clean Harbors, an industrial and environmental cleaning firm, to inspect and clean up the scene."

BCON: I'm also long, but only a tiny part of my protfolio. I personally think the stock action is reasonable, given the little we know... these companies are so speculative that they are very much pushed around by hope and fear, not by a realistic appraisal of thier prospects. With a story like that, fear has the upper hand, and there is no telling how low it goes. This is the type of situation where the gigantic returns can be made, but buying when no one knows anything, and hoping for good news to come out... but it's still way to pricy to try that now... but and it's only for the very brave... the company has negative earnings, and there is no doubt that it will take them longer becasue of this, if they get there at all. Start up companies are very fragile, and I think the recent price moves are just a reflection of that fact.

On the Railpower Tech story, the main driver for the upswing in price was the announcement late December of their EPA certification for their Green-Goat train. This certification was required by their major customer and was needed by January 15/07 so it was a big boost for the company. This should clear the way for much more contract signing. Their liquidity is still a problem but if the stock price settles in the 1.50 range then a financing won't be as dilutive as was previously thought when their share price was only .50. They are a prime takeover target with their very advanced technology, EPA endorsement and a reasonably low market cap.

I agree with Tom's well made points.

The good news is no one was injured in the accident. The dust was probably powedered mortar as a result of the explosion. The firefighters probably doned breathing equipment incase it was ASBESTOS containing (although unlikely).

Unfortunately accidents happen the chemical industry has had it's fair share and is still "learning". Indeed this "learning" safety culture can only be encouraged within organisations/industries such as these and ALT-ENERGY PLCs for example. No doubt "HAZOP studies" will now take place to ensure this doesn't happen again at Beacon.

Hopefully the company will learn from this and emerge stronger as a result, both in terms of management and procedures

My advice to the cautious (AND PRUDENT!) investor - is to query the prospective organisations regarding their "health and safety" and HAZOP arrangements BEFORE INVESTING.

Pro-activity is better than Reactivity... although once again, accidents will always happen... its just a question of making them rare and when they do - easier to deal with

The thing with clean tech/alt energy companies - is the (currently) unavoidable use of certain-chemicals, new engineering designs and in particular within R&D to test them to their absolute limits. That is what R&D is all about. Experience makes one learn what is reasonable and what is not!

Regards

Mark

Hi R. Wannek,

Yes, I came across the EPA story but forgot to mention it in the post. Big oversight on my part. I hadn't realized, however, it's significance...and that's why I forgot about it.

Looks like it's probably a combination of RailPower getting out of that contract and the EPA certification. As I understand this, yes there is a liquidity problem but investors might have been punishing the company a little more harshly then the fundamentals justified over the past few months, and that provided plenty of good entry points for patient value investors.

RailPower has shed a fair bit of its gain since I did this post, and it currently sits at $1.27.

re: Rise and Fall of Railpower stock price.
This has been a hard luck story for Railpower. The only insight I can offer is regarding their problem with battery overheating and life reduction. This came to light around the start of 2006, and hammered the stock righteously. It was the company's misfortune to employ a development test engineer who failed to understand the relation between battery discharge, temperature, and battery life. The R&D director has since been replaced by someone who respects Murphy's law.
You would have thought that with veteran railway design engineers in the boardroom and executive suite, the design and test would have been more conservative. What I like about this company is their exuberant approach to energy conservation and pollution. Tugboats, yet! What I dont like is their exposure to takeover by huge companies like GE, which has belatedly begun to look at natural gas loco engines. Give me a break!
Fred Bealle
Ottawa, Ontario

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