Tom Konrad CFA
March was a volatile month for clean energy, with many of my picks reporting earnings. My 11 picks were down 4% on average since my last update (March 1st to April 5th), compared to a 9% decline in the Powershares Wilderhill Clean Energy Index (PBW), while the broad Russell 2000 index was flat. The hedged portfolio (see the original article for details) lost 5%.
For the year to date, the portfolio has put in a strong performance, and is up 15%. PBW and the Russell 2000 are up only 3% and 11%, respectively. The hedged portfolio is up 10%. See the following chart for details:
Wind Developers: A Little Birdie Told Me
Last time, I mentioned I has a limit order to buy Western Wind Energy (WNDEF.PK/WND.V.) That order has since executed at $1.68, and the stock bottomed at $1.66. Since then, I tweeted that the company had applied for the $90M Section 1603 cash grant on their 120 MW Windstar project. While this was expected, it reduces uncertainly around the company’s projects. Even a little more certainty around a $90M payment is significant for a $115M market cap company.
I also tweeted that Finavera Wind Energy (FNVRF.PK/FVR.V) had received its Environmental Assessment Certificate (EAC) for its Tumbler Ridge project. This was the last barrier to project construction (funded by GE Energy (GE).) The EAC is also significant because the EAC applications for Finavera’s 77MW Wildmare and 120MW Meikle projects are modeled on Tumbler Ridge. Not only can Finavera begin construction of Tumbler, but investors can be a little more confident that Wildmare and Meikle will also obtain EACs. Finally, Finavera also closed on a $200 thousand convertible note in March, easing the company’s tight liquidity. I recently bought more Finavera at $0.355 on the EAC news.
Earnings disappointed investors at New Flyer (NFYEF.PK/NFI.TO) and Lime Energy (LIME.) I wrote about New Flyer last week, so I won’t repeat myself here. Since then, the only news has been the ratification of a new collective work agreement by the union at New Flyer’s Winnipeg factory: Good news, but not enough to move the stock much.
The highlight of Lime’s (LIME) earnings were a big write-off and less than expected revenues in their Commercial and Industrial (C&I) division. When I first wrote about Lime last October, I concluded by saying,
A renewed market decline, along with a possible earnings miss caused by C&I clients hoarding cash in the climate of uncertainty could easily lead to a lower stock price in the coming months. I’ll be watching the stock closely and buying cautiously if either of these comes to pass.
We have not had the stock market decline yet, but this was the earnings miss I was waiting for. I took the opportunity to scoop up a bunch of this stock between $2.65 and $2.95 over the last week, most notably when Lime had a surprising intra-day sell-off which I tweeted about on Monday.
On March 9th, Waterfurnace Renewable Energy (WFIFF.PK/WFI.TO) announced revenue for 2011, down 0.5% from 2010, but improved margins because of a price increase in late 2010. The market has reacted mildly favorably, with Waterfurnace’s stock climbing slowly but steadily since.
Alterra Power (MGMXF.PK/AXY.TO) also announced earnings on March 28th. The good news was no news: all Alterra’s development project continue on pace, and there have been no significant hiccups in power production. Given the large number of mishaps in the geothermal industry in 2011, a few months of no bad news is all that it takes a for great stock performance in 2012.
The Acquisition Cycle
Bicycle manufacturer Accell Group (ACCEL.AS) was cruising along with 2011 sales 9% over 2010, and net profit up 11% announced in February. Profits were driven by a continued shift into higher value electric bikes. The company is re-cycling its profits into more acquisitions of bicycle brands. Accell adds value to its acquisitions with a strong distribution network which is unusual in the very fragmented bicycle industry. Having already purchased American electric bike and scooter manufacturer Currie Technologies, Accell is now in talks to buy storied bicycle brand Raleigh. (As an aside, I own an older Currie iZip, a utilitarian commuter bike, although I just upgraded to the much sportier EZ008 and am looking to sell the iZip.)
While my stocks lost a little ground in March and the first week of April, it has been a good month in comparison to Clean Energy stocks in general. Most of this has probably been due (again) to my avoidance of solar stocks, which are again looking like they are headed for new lows.
We’re seeing decent buying opportunities in Lime Energy, which I think is a deal below $3, and Finavera which seems quite cheap at $0.36, although the company’s low cash on hand could drive the stock lower if they are forced to dilute current stockholders to raise funds.
DISCLOSURE: Long WFIFF, LIME, AMRC, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, and puts on IWM and SPY.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
About WNDEF, I’m wondering what to make of the prospect of expiring subsidies for wind energy in the US.
I expect this will weigh on the stock. Does it fundamentally affect the value of the company?
The value of the company’s current wind projects is unaffected. All were completed by the deadline.
Does the end of subsidies mean no new wind and solar farms in the short-term? I assume State Renewable Portfolio Standards still have to be met but will utilities pay enough to make new projects feasible?
In the very short term, hardly any new farms (developers moved plans forward to catch the tax breaks). In the longer term, there will be fewer, and driven by state policies.
WNDEF lists at least two major US “projects” (Windswept and Snowflake in CA and AZ) on its website. Looks to me like they’ve already invested money in them. I wonder if these projects will go ahead absent federal subsidies?
You should re-read my article on WNDEF. I did not include those projects in my valuation. I’d expect they’ll go ahead only if they get PPAs with local utilities which make them economic without the PTC, if the PTC is not renewed. Otherwise they’ll wait.
I understand these projects were not part of your estimated valuation but I wondered if the money lost because these projects do not go ahead could do real damage to the company.
I don’t think the money spent is significant on a per share basis
New Flyer’s competition is now reduced!
Production of Orion transit buses to wind down after fulfillment of current orders.
Daimler (Orion) also says that expectations for the transit bus business are low and likely to remain depressed over the next several years. I don’t think that refers to the survivors however.
“Daimler Buses considered all possible options for reconfiguring our transit bus operations in North America, but at the end of the day, Orion is facing a situation where the cost position is not competitive, the local market is in a continued slump, and growth opportunities are not available from selling the product overseas,” said Schick.