Quite a while ago, I promised readers that I’d write an article looking into Lithium Technology Corporation (LTHU.PK,) in addition to articles I’ve already written on US Geothermal (HTM) and Evergreen Solar (ESLR) Lithium Tech is a provider of custom lithium rechargeable batteries for military, national security, stationary power, and transportation applications. Investors hoping for the big score probably have their eyes on the transportation applications, which should drive demand for lithium-ion batteries over the next decade.
That’s all wonderful, but since August, we’ve had a financial meltdown, prompting me to focus much more on companies’ need to raise new financing and balance sheet liquidity. Although I thought both Evergreen and US Geothermal were good companies for their respective industries (Solar and Geothermal), the stock prices of both have plummeted since the articles were written. Evergreen has been badly hurt because they had loaned 30.9 million of ESLR shares as part of a financing transaction. With the Lehman bankruptcy, the recovery of these shares is murky, and the company may find that existing shareholders have been greatly diluted without any new capital flowing to Evergreen. I have sold my stake in Evergreen as part of my move to re-focus my portfolio on energy efficiency and transmission companies (after the news came out about Lehman, however- ouch). I can find no reasonable explanation for the decline in US Geothermal’s stock price except forced selling due to margin calls.
Now that the financial crisis is upon us, I find it much easier to give my opinion on Lithium Technology: Don’t buy it. Despite the fact that Lithium is so thinly traded that the stock has stayed around $.06 since February, the company has not published any financial data since December 2007. According to the most recent letter to shareholders from December 2007, the company has had to restate financial data going back to 2004 and 2005. Even with the uncertainty that such restatements bring to more current financial data, the company showed an operating cash loss of $13 million in 2007, with a levered free cash loss of $2.5 million. With only a quarter million dollars in cash on hand, and an operating tax loss of $13 million over 12 months, this is a company which looks likely to have to return repeatedly to the capital markets for new financing. New financing is unlikely to be available on favorable terms, given current market conditions and the company’s weak balance sheet.
All that is based on data which is almost a year old. With no new data to go by, it is usually best to assume the worst. Even the data we have looks dire. If you don’t own this company, good for you. If you do, you can console yourself with the fact that even investors in well capitalized companies have been losing money recently.
DISCLOSURE: Tom Konrad owns HTM.
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Great timing on your sell ESLR call–NOT