Ten Clean Energy Stocks For 2014: September Update and Thoughts on the Finavera Deal

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Tom Konrad CFA

Clean energy stocks and the market in general rebounded strongly in August.  My broad market benchmark of small cap stocks, IWM,  rose 4.5%, returning to positive territory up 1.7% for the year. My clean energy benchmark PBW also jumped back into the black with an 11.1% gain for the month and 10.8% for the year to date.  The less volatile defensive stocks in my 10 Clean Energy Stocks for 2014 model portfolio rose 1.9%.  For the year to date, the model portfolio is up 6.2%.

(Note that the monthly numbers are for August 5th to September 4th, and the YTD numbers are from December 26th to September 4th.  I use numbers as of when I have time to write, rather than strict month-end in order to make these updates up to date as possible.)

10 for 14 - September.png

Individual Stock Notes

(Current prices as of August 5th, 2014.  The “High Target” and “Low Target” represent my December predictions of the ranges within which these stocks would end the year, barring extraordinary events.)

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/26/2013 Price: $13.85.     Low Target: $13.  High Target: $16.  Annualized Dividend: $0.88.
Current Price: $14.31.  YTD Total US$ Return: 6.5

As expected, Sustainable Infrastructure REIT Hannon Armstrong’s second quarter report was generally positive, beating analysts’ estimates by a penny.  Earnings in Q3 should be significantly higher as recent large investments were only producing income for part of the second quarter.  The stock has recovered from the lows which had me adding to my position at the start of last month, as discussed in the last update.

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
12/26/2013 Price: C$4.85.   Low Target: C$4.  High Target: C$6. 
Annualized Dividend: C$0.24.
Current Price: C$4.50. YTD Total C$ Return: -3.5%.  YTD Total US$ Return: -5.0%

Green building company PFB has recovered a little from recent lows. The company’s largest shareholder continues to purchase its stock on the public market.  PFB paid its normal C$0.06 quarterly dividend.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF)
.

12/26/2013 Price: C$4.44.   Low Target: C$3.  High Target: C$5.  
Annualized Dividend: C$0.30.
Current Price: C$4.38.  YTD Total C$ Return: 31.8%.  YTD Total US$ Return: 29.7%

Independent power producer Capstone Infrastructure held steady throughout the month, without significant news.  Analysts at Scotia Bank raise their price target slightly from C$4 to C$4.50, but did not change their “market perform” rating on the stock.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
12/26/2013 Price: C$4.93.   Low Target: C$4.  High Target: C$7. 
Annualized Dividend: US$0.28. 
Current Price: C$6.00.  YTD Total C$ Return: 24.4% .  YTD Total US$ Return: 22.3%

Waste heat recovery firm Primary Energy announced a regular quarterly dividend of 7¢ US to holders of record on August 15th. but there was no other significant news.  The gain shown here was mostly a big jump at the close today (Aug 5th.) It might just be a blip (the stock is thinly traded), or there may be trading based on rumors of some real news about to be announced.

Update: The jump seems to be due to the immanent acquisition of Primary Energy by Fortistar.  The Wall Street Journal reported that a deal was “near” shortly after the close.

5. Accell Group (Amsterdam:ACC [formerly ACCEL], OTC:ACGPF).
 
12/26/2013 Price: €13.59.  Annual Dividend €0.55 Low Target: 11.5.  High Target: €18.
Current Price: €13.75. YTD Total  Return: 5.2% .  YTD Total US$ Return: -0.8% 

Bicycle manufacturer and distributor Accell Group fell 4% during the month, mostly due to a 3% decline in the value of the Euro.  On the business side, the company bought Spanish bike parts and accessories Comet.  I think this acquisition is good for Accell’s business since it strengthens the company’s distribution network in Southern Europe. 

The press release was also encouraging in that “Comet’s annual normalised operating result as a percentage of profit is slightly higher than the historical average (6%) of Accell Group… The acquisition will make an immediate contribution to Accell Group’s earnings per share.”  In other words, the acquisition should be good for per share earnings, even before any synergies are realized.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/26/2013 Price: C$10.57.  Low Target: C$8.  High Target: C$16. 
Annualized Dividend: C$0.585.
Current Price: C$13.68.  YTD Total C$ Return: 33.1% .  YTD Total US$ Return: 31.0%.

Leading transit bus manufacturer New Flyer announced second quarter results on August 5th. Deliveries, revenues, and earnings were all up strongly over the same quarter last year.  Investors and analysts liked what they heard, with the stock advancing over 7% for the month.  Canaccord Genuity raised their price target and upgraded the stock to “Buy” from “Hold”, and CIBC raised their price target as well.   

7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64Low Target: $8.  High Target: $16.  No Dividend.
Current Price: $8.12  YTD Total US$ Return: -15.8%.

The stock of energy performance contracting firm Ameresco continues its recovery from previous lows after the much less negative comments from management I discussed last month.

The company also bought UK energy service provider Energyexcel LLP, which fits its long term strategy of small acquisitions which broaden its geographic reach or skill set.  Insiders continue to buy the stock on the open market.

8. Power REIT (NYSE:PW).
12/26/2013 Price: $8.42Low Target: $7.  High Target: $20.  Dividend currently suspended.
Current Price: $9.15 YTD Total US$ Return: 8.7%

Solar and rail real estate investment trust Power REIT filed its second quarter report, which remains dominated by the legal costs of its civil case against the lessees of its railway property, Norfolk Southern (NYSE:NSC) and Wheeling & Lake Erie Railway.  A court transcript from July and the most recent litigation update offer some hope that the end of the litigation is in sight.  The parties are now working on their motions for summary judgement, on which the court will likely rule in early 2015.  The summary judgement might bring resolution, but, if not, the case is expected to go to trial in February next year.  Any resolution, even one in favor of the lessees, is likely to be good news for Power REIT’s shareholders.

9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17Low Target: $8.  High Target: $25.
No Dividend.
Current Price: $9.41. YTD Total ZAR Return: -19.9%. YTD Total US$ Return: -22.7%

Global provider of software as a service fleet and mobile asset management, MiX Telematics reported second quarter results.  As has been the case in recent quarters, the company has been making rapid progress selling its bundled, software-as-a-service (SaaS) offering.  When SaaS sales replace equipment sales, as they did this quarter, it reduces short term earnings, but increases long term revenue streams, so this earnings report was moderately good news, despite the fact that quarterly earnings missed analysts’ estimates.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
12/26/2013 Price: C$0.28. Low Target: C$0.20.  High Target: C$0.60. No Dividend.
Current Price: C$0.32   YTD Total C$ Return: 12.5% .  YTD Total US$ Return: 10.7%.

Renewable energy developer and operator Alterra Power closed on a C$110 million loan from AMP Capital to finance construction at its Jimmie Creek run-of-river hydro and Shannon Wind projects.

Two Speculative Clean Energy Penny Stocks for 2014

Ram Power Corp (TSX:RPG, OTC:RAMPF)
12/26/2013 Price: C$0.08.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.02   YTD Total C$ Return: -75% .  YTD Total US$ Return: -75.5%
Terminal US$ Return -57% (when I said to sell on June 3rd.)

Geothermal power developer Ram Power’s stock remains in the dumps at $0.02.  The decision to take our losses in June continues to look like a good one.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF). 
12/26/2013 Price: C$0.075.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.14   YTD Total C$ Return: 86.7% .  YTD Total US$ Return: 83.7%.

Wind project developer Finavera got a nice lift when it gave some details of its long-promised plan for its business going forward.  It signed an agreement, pending shareholder approval, to purchase San Diego, CA based solar installation marketer Solar Alliance of America (SAoA) for C$4 million in cash and C$2 million in stock.  The stock portion of the deal will be priced at the higher of C$0.21 or the 20 day weighted average price of Finavera stock following closing of the deal.

Shareholders have been promised a vote to either go ahead with this deal or to wind up the company and distribute what I estimate to be approximately 12 to 14 Canadian cents per share after paying off and renegotiation of its liabilities and receiving the final payment for its Cloosh wind farm from SSE. 

Long time readers will know that solar is the one clean energy sector that I stay away from, mainly because it gets so much attention from other investors and analysts.  That’s one reason I find this deal impossible to value, the other being that we have no information on SAoA’s profitability, only its revenues.  Finavera CEO Jason Bak has told me he hopes to release more information about the deal before the Annual Meeting on September 15th, but that date is rapidly approaching.

Although I find the deal impossible to value, I find it encouraging that the stock portion of the deal was priced at C$0.21 or above, and I know that other investors are both much more knowledgeable and enthusiastic about solar installation than I am.  Hence, I expect the deal will increase Finavera’s stock price over time.  Barring any surprises ahead of the annual meeting, I will probably vote for the deal, but then look to exit the stock as Finavera begins to present itself to investors as a residential solar pure play, and the stock appreciates accordingly.

Conclusion

The only big news this month was in speculative pick Finavera, and I still feel as if I do not have enough information its plans to purchase Solar Alliance of America.  That said, I expect the move into residential solar will be good for the stock price, and its nice to see gains in Finavera easily covering the losses incurred in the first half in my other speculative pick, Ram Power.

The main portfolio continues to perform as designed, advancing modestly but with much less volatility than most clean energy stocks.

Disclosure: Long HASI, PFB, CSE, ACC, NFI, PRI, AMRC, MIXT, PW, AXY, FVR.  

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 investme
nt 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.

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