by Debra Fiakas CFA
The Blue Sphere, Inc. (BLSP: OTC/QB), stock price has weakened in recent months as investors registered their apparent frustration with fundamental developments. Proposed acquisitions of operating biogas power plants in Italy have taken much longer than expected and majority interest in planned biogas plants in the U.S. were sold into joint venture arrangements rather than held as 100% equity positions. Despite these developments, Blue Sphere management has doggedly moved forward on all fronts and there has been measurable progress toward first revenue.
Commercial operation dates have been set for Blue Sphere’s first two biogas development projects in the U.S. Construction progress is on-schedule for a 5.2 megawatt biogas power plant near Charlotte, North Carolina. The facility is scheduled to be connected to the local electrical grid on October 27, 2015. Likewise construction is on-schedule for a 3.2 megawatt biogas power plant in Johnston, Rhode Island. The Johnston plant is on the calendar for connection to the local power grid the third week in December 2015. Both plants deploy anaerobic digestion equipment to convert food waste to energy to heat steam-powered turbines and electrical generators.
Blue Sphere lined up Austep, S.A. of Italy to supply the digestion and generation equipment for both the North Carolina and Rhode Island plants. Austep has also agreed to operate both plants once construction is completed and has provided performance guarantees to the Blue Sphere and its joint venture partner in the two plants, York Capital. Food waste supply agreements for both plants have been secured and tipping fees to the joint venture have been finalized. A 15-year power purchase agreement with Duke Energy (DUK: NYSE) is in place for the North Carolina electricity output and a similar agreement has been secured for the Rhode Island plant. Additionally, McGill Environmental has signed a 10-year off-take pact for compost by-product of the anaerobic digestion process.
Once operational, Blue Sphere will claim 25% and 22.2% of the profits from the North Carolina and Rhode Island joint ventures, respectively. Since construction of both plants is near completion, and connection to the electrical grid and power purchase agreements are in place, we expect both plants to begin contributing to financial results in fiscal year 2016.
Progress has also been made in Blue Sphere’s bid to acquire fully operational biogas powered plants in Italy’s famed Lombardy agricultural region. The final due diligence and legal arrangements have been completed, clearing the way for Blue Sphere to close its pending purchase agreements to acquire the four plants. All four plants will be 100% owned by Blue Sphere and are expected to contribute revenue beginning in fiscal year 2016. Each plant is separately operated, producing 999 kilowatts that is being transmitted to the contracted power purchaser Gestore del Servizi Energetici, S.p.a., through Italy’s regional power grid. Biogas equipment supplier and operator, Austep, has been signed to operate each plant. Pending completion of legal and financing arrangements, Austep is monitoring operations at each of the four plants.
Our most recent research report on BLSP still cites shallow trading volume as a potential securities risk for investors in the stock. However, the report also notes that average daily trading volume has increased to 1.2 million shares per day over the last six months compared to about 800,000 in the previous six months. This is an encouraging development that signals rising investor interest and more efficient valuation of the stock. The report also noted that management has made progress in reducing debt, albeit at the expense of shareholders through the dilutive impact of debt converted to common stock. Thus the stock at its current depressed price remains an interesting option on management’s execution success.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. BLSP is featured in research reports published by Crystal Equity Research. Please note the important disclosures at the end of all Crystal Equity Research reports. Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.