Tom Konrad CFA
As I discussed in the first part of this update, this part will discuss the drivers behind the performance of the individual stocks in my Ten Clean energy Stocks for 2013 and six alternative picks. I looked into the performance of the portfolio as a whole in part I. The chart below summarizes individual stock performance. Note that it reflects two more days of trading since I wrote part I.
Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF)
Geothermal heat pump manufacturer Waterfurnace rose 25% but not on any significant news. Analysts at Canaccord Genuity raised their price target from $24 to $25 in early May, but I think most of the rise was due to WFI’s earlier highly depressed levels and the recovering housing market.
Lime Energy (NASD:LIME)
Lime Energy finally announced a filing schedule for its financial reports dating back to 2008, all of which had to be restated after the company’s audit committee determined they previous reports could not be relied on. Lime expects to file the 2012 annual report (including restatements of prior years) and subsequent quarterly reports through the third quarter of last year on or before July 31st. It expects to publish Its first quarter report for this year by August 8th.
Unfortunately, this schedule does not satisfy the already-extended deadline (June 30) granted by a NASDAQ Hearings Panel, and so the stock could be subject to delisting if another extension is not granted. In general, investors seemed cheered to finally have a filing schedule. Although the stock sold off at Friday’s close (on low volume), it rebounded on July 1st.
The extension was granted on July 2nd. I expect a mild rebound over then next month, but the real move will come when we have some real financial data on July 31st. What little information we have seems to point to the company’s business doing well: They are hiring in New Jersey and recently won a national energy efficiency award from the Alliance to Save Energy.
PFB Corporation (TSX:PFB, OTC:PFBOF)
Energy efficient building products company PFB paid its promised $1 special dividend in May, but the stock fell almost as much. Given the recovering housing market and the fact that the new, lower price effectively makes the (regular) dividend yield 4.7%. I consider the stock attractive around $5 and have added to my position beyond just reinvesting the special dividend.
|TSX:WFI||Waterfurnace Renewable Energy||25%|
|NASD:ZOLT||Zoltek Companies, Inc.||-17%|
|TSX-V:FVR||Finavera Wind Energy||-16%|
|TSX:NFI||New Flyer Industries||10%|
|TSX:RPG||Ram Power Group||-16%|
Ameresco, Inc. (NASD:AMRC)
Turnkey energy efficiency and renewable energy solution provider and performance contractor Ameresco purchased a British energy management consulting company in order to expand its services for multi-national clients in June. This fits with Ameresco’s long term strategy of acquiring small, tuck-in, acquisitions in new geographies. The stock rose a healthy 15% for the two months.
Accell Group (Amsterdam:ACCEL)
Bicycle manufacturer and distributor Accell Group fell 11%, seemingly in sympathy with European markets.
Zoltek Companies (NASD:ZOLT)
Carbon fiber manufacturer Zoltek gave back 17% on lower than expected first quarter sales and earnings. The shortfall arose from slow sales in the wind industry. We can expect wind sales to pick up again toward the end of 2013, as turbine manufacturers ramp up production to meet renewed demand from developers wanting to break ground on wind farms before the end of 2013 to qualify for the extended Production Tax Credit.
The big potential mover for this stock is the po
ssibility of a buy-out or big investment from Quinparo Partners, discussed here. Zoltek’s board continues to “review strategic options.” Landing a big customer in the auto industry could also turbo-charge ZOLT.
Kandi Technologies (NASD:KNDI)
Chinese EV and off road vehicle manufacturer Kandi Technologies took investors for a wild ride over the last month, with a strong rally triggered by progress in their joint venture with Geely (the car the JV will produce was approved by the Chinese government), and by the start of construction of a vertical parking structure designed for Kandi cars by the city of Hangzhou. The structure is intended as the first of many such structures to be used by a new car-sharing service in the city.
As I said I would in the last update, I took a serious look at concerns raised by Kandi’s skeptics in May. My initial plan was to rebut their claims, but I found that they changed my mind instead.. On May 31st, I published an article generally skeptical of Kandi’s management. There aren’t any smoking guns, but there are several red flags that make me worry that Kandi’s management may not be totally committed to the interests small shareholders. I concluded,
I no longer consider Kandi a long-term hold. That said, my concerns about management are long-term in nature, and I think Kandi’s short term trend will be up. … I expect Kandi’s upward momentum will soon resume. I intend to maintain my reduced holding to take advantage of that trend.
Shortly after that article was published, the news about the Kandi-Geely JV came out, and Kandi stock took off like a rocket. I locked in much of my gains by selling $5 covered calls.
Ten days after the article’s initial publication on Forbes, I republished it (after Forbes’ exclusive copyright period) on AltEnergyStocks.com, with a couple extra paragraphs to reflect the recent action, and re-titled it “Rent This EV Stock and Enjoy the Ride, But Don’t Keep it Too Long.” “Too long” came quickly. Kandi hit an intraday high of $8.50 the next day (June 11), and has trended down since.
Over the last couple trading days, the down-trend has been reinforced by a sale of $26.3 million, consisting of 4,376,036 common shares (13.5% of previously outstanding shares) priced at $6.03, and 1,750,415 warrants with an exercise price of $7.24 per share. I feel the timing of the offering was fairly astute, as it allowed Kandi to raise needed capital at a significantly higher price than the stock had traded for years, but the larger share base will make it harder for the ride upward to continue, especially for the next 60 days, during which the two investors have the option to purchase another 728,936 shares for $7.24 a piece. That option will cap the price for two month, since any rise above $7.24 would tempt the investors to buy the shares from the company and sell them on the open market.
I remain long, but with short covered calls in place. My concerns about Kandi’s management remain long-term, while I think the short term will continue to show positive news trends. Despite my concerns about management, I intend to retain Kandi in the model portfolio for the remainder of the year.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
Wind developer Finavera received approval of its sale of two developments projects to Pattern Energy. I looked at this in some detail last month, including a scenario analysis of Kandi’s likely value at the end of the process in late 2014 (C$0.35 a share), and the milestones it needs to hit along the way. You can find that article here. Shareholder approval seems to have halted the stock’s decline, but it has yet to catch any lift.
Alterra Power (TSX:AXY, OTC:MGMXF)
Diversified renewable energy developer Alterra Power finalized the terms of its joint venture with Philippine geothermal developer and operator EDC. EDC will earn a 70% interest in the four projects in Chile and Peru, putting the value of Alterra’s stake at $25 million, or 5.4 cents a share, approximately book value. If the whole company were valued at book, it would be trading at $0.78, not $0.31. Book is probably a low estimate of Alterra’s true value, given that it has significant operating assets, not just development projects like the ones in the EDC joint venture.
Hence it’s not a surprise that Alterra’s Chairman, Ross Beaty bought another 7.6 million shares (1.9%) at the start of June, upping his stake to 30.9%. As I mentioned in the last update, he has been hinting he will buy the whole company if the share price does not recover.
Waste Management (NYSE:WM)
Waste Management declined slightly despite the rising market because the rumors that the IRS might allow it to convert to a REIT look likely to amount to nothing.
Six Alternative Clean Energy Stocks
New Flyer Industries (TSX:NFI, OTC:NFYEF)
Transit bus maker New Flyer made what I think is an excellent acquisition in fourth-largest North American bus manufacturer, NABI. The stock, which had been down, ended the two month up 10% on the news.
LSB Industries (NYSE:LXU)
Chemicals and Climate control conglomerate missed earnings and revenue estimates for the first quarter, although the shortfall was mostly attributable to plant downtime and should be made up in later quarters from insurance proceeds. The stock decline occurred mostly in the last couple weeks, and does not seem to be news-related.
Maxwell Technologies (NASD:MXWL)
Ultracapacitor maker Maxwell Technologies continued to advance. The best explanation is have is that it gathered a little solar shine from , seemingly a joint venture with Soitec to demonstration integrate energy storage with Concentrating Solar (CPV) technology. I find the advance very strange given that the stock is now trading at over 20 time training earnings which we know to be significantly overstated. The Solitec JV is a demonstration, and will not significantly effect earnings any time soon, if ever.
Power REIT (NYSE:PW)
Power REIT declined significantly when an article by a new author came out on Seeking Alpha at the end of May which questioned the company’s ability to avoid bankrup
tcy. At first I thought this author was just a beginner who had not done his research well, and I wrote a rebuttal pointing out problems with his logic and math. The article was withdrawn because of its factual errors and misleading conclusion. I’m now wondering if the article was instead an attempt to profit as an undeclared short seller.
My suspicion was aroused because the author claimed to be fixing the problems with the article to get it reinstated on Seeking Alpha, but he never delivered. Further he hid his identity behind the Seeking Alpha profile: Although he claimed to want an open discussion, he would not discuss the problems in his article with me or Power REIT’s CEO on the phone or by email.
The damage was longer lasting than I expected, most likely because PW’s already thin volume has completely dried up. It has been hovering around $9, well below the $10.50 or more it was trading at before the article appeared. The company’s CEO thinks this is a buying opportunity. Since the article came out, he has bought 16,000 shares for prices between $8.21 and $9.49. I added to my position as well.
US Geothermal (NYSE:HTM)
The news has been mostly good at US Geothermal, with some promising preliminary drilling results at its development project in Guatemala. In conjunction with its first quarter results, management also provided earnings guidance for 2013, predicting full year EBITDA between $12.5 million and $13.4 million. In the first quarter, ITDA (Interest, Tax, Depreciation, and Amortization) amounted to $2.14 million. If this is maintained for the full year, we can expect earnings between $3.9 million and $4.8 million, or between 4 and 5 cents a share. This gives HTM a forward P/E of about 8, which seems ridiculously low for a growing company.
Ram Power Group (TSX:RPG)
Geothermal developer Ram Power, like the other renewable developers, continued its decline despite generally positive news. At 16 cents, it’s now trading for barely more than cash on hand, and only 23% of book value. With the company producing positive operating cash flow in the first quarter, which should increase by $1 million a quarter after a company reorganization, there is no reason for Ram to be trading at such a gigantic discount to book value, let alone near cash on hand.
The decline of the small renewable energy developers in this portfolio seems totally disconnected from financial reality, and has acted as a significant drag on the portfolio as a whole.
At the Renewable Energy Finance Forum (REFF) Wall Street last week, I spoke to a wind developer who told me it is hard in the current environment to buy development projects. In that environment, all four of the developers in this list look like favorable acquisition targets, perhaps with the exception of Finavera, since Pattern has already committed to buying the bulk of its assets.
Disclosure: Long WFI, LIME, PFB, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG. Short: MXWL.
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.