FuelTech: Pushing on a String of New Orders

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by Debra Fiakas CFA

Earlier this month Fuel Tech, Inc. (FTEK:  Nasdaq) announced the receipt of order for air pollution control systems totaling $2.0 million.  The customers are strung out across the U.S., Europe and China, but they all have dirty combustion systems and need to reduce toxic nitrogen oxide (NOx) and carbon dioxide (CO2) emissions or risk running afoul of government clean air standards. 

These shipments are just the most recent in a string of orders Fuel Tech has won in recent months.  In late August 2015, the company received similar air pollution contracts from customers in South America, China and the U.S. totaling $7.7 million.  Then in October the company received another three orders from customers in the U.S. and China valued at $11.0 million.

Push all these orders together and investors get a much more interesting picture of order flow at Fuel Tech.  New orders totaling $20.7 million over a period of three months might mean a turn-around for Fuel Tech’s future.  The company reported $74.2 million in total sales over the twelve months ending September 2015, well below the $108.3 million in total sales the company reported in 2013.  The stepped-up pace of new orders suggests Fuel Tech is clawing its way back in a market that has been trouble by growth concerns and financing obstacles for the industrial and energy companies that need pollution control systems.

New business is not the only problem before Fuel Tech.  The company has had trouble maintaining profits as sales have slipped.  In the most recently reported twelve months the company reported a new loss of $20.4 million or $0.89 per share.  Nonetheless, the company was able to generate $3.0 million in operating cash flow.
It appears the company needs a run rate near $100 million in total sales to make a profit.  Management has tried to reduce operating costs, including force reductions and other budget cuts.  In the first nine months of 2015, the company reported saving $2.1 million or 8% of spending last year.

Emissions control for combustion systems is vital and there appears to be a large, unmet market.  When the economics finally drive customers to make the investment, Fuel Tech is likely to get orders.  Unfortunately, economics of late have not been in Fuel Tech’s favor. That has left the company’s stock priced at a bargain 0.70 times revenue. 

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. 


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