September 18, 2014

Future Fuel's Enticing Earnings

by Debra Fiakas CFA

Who doesn’t like a bargain?  FutureFuel Corporation (FF:  NYSE) is trading near $13.15 per share, below nine times net earnings.  Yet, the enticing earnings multiple might be only part of the story.

The stock has gapped down in price twice in the last six months, trailing off after each leg down.  The stock now appears oversold.

Based in Missouri, FutureFuel produces biodiesel and biobased speciality chemical products.  In the twelve months ending June 2014, the company reported $396.9 million in sales, providing $53.5 million in net income or $1.52 per share.  The company converted 9% of sales to operating cash.   That might seem impressive, but what has investors in a funk is that sales are shrinking.  In the June 2014 quarter the company reported a weak $68.0 million in total sales, compared to $106.0 million in the same quarter in the prior year.

Thus FutureFuel probably is not the bargain that the low earnings multiple suggests.  A review of recent trading patterns suggests the stock has so much negative sentiment that it could trade as low as $5.00.

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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Oil and Gas




September 17, 2014

Cellulosic Feedstock: The Gap Between Switchgrass And High Yield Corn

Jim Lane 

As the first wave of cellulosic biorefineries launch — is there really enough affordable feedstock for the next wave? Can growers make enough money to justify the switch…and risk?

For several years, the questions that have perplexed actors in the advanced bioeconomy have revolved around policy stability and the effectiveness of the new technology: can new advanced fuels be affordably produced and will there be a market for them?

Years ago, these were the same questions that were asked about petroleum. Today, when people talk about petroleum and long-term availability (when they choose not to focus on carbon or on energy security issues), it all relates back to feedstock cost and availability. $80 oil (good), $120 oil (bad), $200 oil (aprés moi, le deluge).

It’s not all that different with the first advanced biorefineries — being built by in this first wave by the technology developers like Beta Renewables, DuPont, Abengoa and Poet-DSM. With the first locations they have chosen — in places like Crescentino, Italy; Nevada, IA; Hugoton, KS and Emmetsburg, IA — the feedstock supply and economics look good. Grower relations look excellent.

According to Deputy Under-Secretary for Science and Energy Dr. Michael Knotek, “we need 1000 of these”. And, true, one thousand of the POET-DSM-sized facilities would generate 20 billion gallons of cellulosic biofuels, and cover the spread between production today and Renewable Fuel Standard targets for 2022. That’s a lot of feedstock. IS there enough?

DuPont-stover-3

 

The DOE has assessed feedstock availability in The Billion Ton Study and Son of Billion Ton — bottom line conclusion, not much to worry about in terms of land availability, as a billion tons would cover 1000 biorefineries three times over, or more.

So, why are we even talking about it? Little secret in Billion Ton — the authors found 328 million tons of feedstock currently available. 767 million dry tons (in the baseline scenario) come from “potential resources” by 2030. And that “potential resource” drops to 46 million dry tons by 2017, if the price is $50 per ton — and POET is targeting closer to $50 than $60.

Whoops. So let’s look closer at the data.

Stover economics.

According to DuPont’s analysis, stover economics look pretty good for growers in and around their Nevada, Iowa project. Bottom line, growers can realize $36 per acre in increased profit by removing 2 tons per acre of corn stover. The increased cost of fertilizer replacement is more than offset by yield gains and stover income. And the yield gains have been confirmed in 93% of field trials.

DuPont-stover-4

DuPont-stover-2

DuPont-stover-1

Here’s the catch, though. Nevada, Iowa is among the most feedstock-replete areas of the country, when it comes to corn stover. What about the rest of the country?

Some data to consider:

1. National corn yields are 5% lower, at 171 bushels per acre (projected for this year by USDA)

2. 80% of farmland is in corn-soy rotation rather than continuous corn, according to USDA.

3. Roughly one-third of farmers practice no-till techniques, according to USDA.

Going back to the DuPont data, let’s note.

1. Without no-till, stover yields drop by 1.1 tons per acre for continuous corn, and 1.2 tons for corn-soy rotation.

2. Without continuous corn, stover yields drop by 1.2 tons per acre for no-till, and drop to zero with tilling.

So, let’s re-do that last DuPont chart, to show how this maps out against the nation’s supply of corn stover. The average is 0.379 tons per acre.

Stover-economics-1

The stover income would fall from $36 per acre to $6.82 per acre, for the average acre.

Energy Crop economics

Let’s look at a leading energy crop candidate, switchgrass, which Genera Energy described as “likely the most studied biomass crop in the US and is one that Genera has had success with as a sustainable and economical feedstock”

In an article published this summer at extension.org, authors Susan Harlow and Richard Perrin suggested that switchgrass may well produce animal feed instead of a biofuels feedstock.

Rationale? A production cost of $65 per ton in the Upper Midwest based on yields of 3.5 tons per acre— including a $200 per acre establishment cost. More importantly, the authors point out that “refineries…will have to pay at least its value as livestock feed, which is expected to be about $95 per ton of DM (equivalent to $83 per ton of 15%-moisture hay).”

And establishment opportunities may be limited, for the authors note that “marginal cropland that can produce corn at yields higher than 60 to 70 bushels per acre, corn is likely to be more profitable [than switchgrass].”

The Bottom Line

Stover economics work well in selected areas like Iowa — but it’s far from universal. Roughly 6 million acres have the optimal economics (7 percent of 93 million acres) — enough for 25 biorefineries of the current standard size, or about 500 million gallons. And that’s assuming that all of the optimized growers are within 30 miles of one of these biorefineries. As it happens, areas with high corn yields such as the Midwest have lagging rates of no-till farming, according to USDA.

Where corn yields drop below 70 bushels per acre, switchgrass economics are fine, says Genera. For high-yielding land using continuous corn, and no-till — stover pick-up looks great. But there’s a lot of acreage in the middle where corn is going to continue to be the crop of coice, but stover is less likely to work.

For the rest, it is going to be about producing energy crops — and we are looking at several years to establish those at sufficient scale to support a biorefinery.

All of which suggests that building out cellulosic biofuels is going to be a lengthy process, stretching well into the 2020s if these numbers hold up.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 16, 2014

SolarCity Product Can Increase Generation On Flat Roofs Up To 50%

By Jeff Siegel

scty934While solar bears and short-mongers celebrated the 8% dip in SolarCity (NASDAQ:SCTY) yesterday, opportunists are sniffing around for another buying opportunity. Especially those who didn't take my advice to load up after the stock fell below $50 back in March. What a bargain that was!

In any event, SCTY took it on the chin yesterday, and I suspect there will continue to be some ebbs and flows in the near-term. Long-term, however, SCTY remains a solid play on the growth of solar in the United States.

It's also worth noting that SCTY has just unveiled a new solar mounting product called ZS Peak. It basically allows installers to install systems on flat roofs in half the time it takes today. And according to reps from SolarCity, this new product can increase generation capacity on flat roof buildings by 20 to 50 percent per building.

ZS Peak makes it possible for far more businesses, schools and other organizations to install solar power on their buildings and immediately pay less for solar electricity than they pay for utility power, and will significantly expand the addressable market for commercial solar.

It's this kind of innovation that continues to put SolarCity ahead of the curve, and it's also one of the reasons I remain bullish on the stock.

My very conservative price target on SCTY for 2014 is $75. Other price targets include the following:

  • Goldman Sachs: $85
  • Deutsche Bank: $90
  • Credit Suisse: $97

Full Disclosure: I currently own shares of SCTY.

To a new way of life and a new generation of wealth...

 signature

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

September 15, 2014

Three Stock Alerts: CREG, EFOI, OPTT

By Harris Roen

Three volatile alternative energy stocks release earnings reports. Two of the stocks jump, one drops.

China Recycling Energy Corp (CREG)
More Info
Latest earnings report for China Recycling Energy Corp shows a huge jump in revenues and net income. Insider selling, however, has led to stock losses. CREG is down 75% from where it was trading just this March. Seeking Alpha
Energy Focus, Inc (EFOI)

Profits jump for Energy Focus Inc, up over 50% from the previous quarter. EPS losses collapse to near zero, and next quarter guidance is positive. EFOI has gained 24% in two days on very large volume. Reuters
Ocean Power Technologies, Inc (OPTT)

Ocean Power Technologies more than triples revenues from the previous quarter and year-over-year. Net income drops, but quarterly EPS losses narrow. OPTT popped up 15% Friday, but is still down for the year and almost 80% below its highs of 2010. CNN Money

DISCLOSURE

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

September 13, 2014

Sketches of DuPont's Cellulosic Ethanol Project in Nevada, Iowa

Jim Lane 

It towers above the surrounding Iowa countryside like the Launch Assembly Building lords it over Cape Canaveral — it’s the new DuPont (DD) cellulosic ethanol project, on the outskirts of the town of Nevada.

Functional yet inspiring, imposing yet accessible — when it opens before year end 2014 it is sure to be a monumental addition to the cellulosic biofuels landscape.

Last week we wrote:
“There are strategic reasons to develop this new industrial bioscience business in central Iowa — not just the “we’d love to have you, wages are low, cost of living’s cheap, and no unions” factors that are of genuine appeal to companies — but pertain to Mumbai and Shenyang, too.

That’s not to say that there’s no competition for Nevada. There’s corn stover a-plenty in the Midwest — and many towns and industrial parks rail spurs, power, water, skilled labor and local growers. Blair (NE), Eddyville, Fort Dodge, Clinton, Hugoton (NE), just to name a few.

But once built, they’ll stay, so long as the economics of the product stay sound, And the more infrastructure you build, the more that is there for the next business to tap into. So — these little Metropoli have every reason to hope for growth — and for higher-skill, higher-wage positions to continue to appear, and not to disappear.”

Biomass intake

The biomass intake system — still with a few construction workers in view — that will accept the corn stover and crush it down to a relatively fine powder — there’s some chopping involved, and some hammering, to get the desired consistency for the enzymatic hydrolysis.

Biomass Silo

This unit above looks like the first stage of the Saturn V rocket, but it’s really almost a silo — holding biomass after intake. After this unit, it will proceed left to the core hydrolysis technology where proprietary enzymes will separate out the C5 and C6 sugars

Fermentation and hydrolysis units

The units above include the large hydrolysis unit to the rear, and the fermentation units — three of them, in the front. It’s bacterial fermentation, so that’s a change of pace from the more-traditional yeast.

fermentation, hydrolysis, storage

Here, you see most of the same technology — and some storage, from a different angle, but you also note there’s still a lively construction crew on site, pushing the project towards completion. That’s Fagen — so well known during the first-generation of ethanol construction.

Distillation

Distillation comes last, where the ethanol is separated from the “beer”.

Crane

Here. you can see the official bird of cellulosic biofuels — the crane — spotted all over Iowa and spreading into Kansas of late.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 11, 2014

The Ginsu Knife of Biofuel Litgation: Butamax vs Gevo

Jim Lane 

It’s like the selling of Ginsu knives, the legal dispute between these two companies. No matter how much you hear….but wait, there’s more!

This week, we heard from Butamax that the District Court of Delaware has issued an order scheduling two further rounds of patent infringement actions pending between Butamax and Gevo (GEVO) for resolution.

The next phase of litigation, involving three Butamax patents asserted against Gevo, will begin in September 2014 with the discovery process and trial is scheduled for August 2015. Thereafter the remaining cases, involving three other Butamax patents asserted against Gevo, will recommence later in 2015 with trial scheduled for as early as April 2016.

The news is not all that new — these two rounds of litigation have been long discussed in the Digest and have been on the books — if not on the exact calendar — for a year or more.

Some of the scheduling has to do with the status of litigation that was originally expected to go froward this summer — the first phase. These suits were postponed based on their similarity to an upcoming Supreme Court case.

Bottom line, the Supremes will hear this fall, rule next spring (we expect) — and then phase two and phase three litigation is scheduled for summer 2015 and summer 2016.

According to Butamax, “Butamax continues to assert a total of eight patents against Gevo. Meanwhile, all of the cases involving patents asserted by Gevo against Butamax have either been ruled in Butamax’s favor or dismissed.”

Worth reminding readers that we have reported that almost all of the cases were dismissed on application by Gevo, which is waiting to sue until Butamax is in production and therefore creating actual harm.

Gevo’s final case against Butamax was dismissed by the Court in August 2014, following an Action Closing Prosecution from the Patent Office rejecting all claims.

Butamax also requested Patent Office re-examination or inter partes review of a total of 15 Gevo patents, of which 14 are ongoing and 1 has concluded in Butamax’s favor. Gevo requested re-examination of four Butamax patents, all of which are ongoing.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 10, 2014

Divesting: Last One Out Loses

Tom Konrad CFA

Anew report written by Nathaniel Bullard at Bloomberg New Energy Finance highlights the difficulties large institutional investors would have divesting from fossil fuels. What it does not specifically discuss is that these difficulties could lead to large financial losses for investors who see the difficulty of divesting as a reason to delay.

Just as we can't easily fill up our cars with solar power instead of gasoline, the report points out that there is no asset class that can directly substitute for oil and gas in large institutional portfolios.

A person with a short commute can simply ditch gasoline for renewable fuel by riding a bike, and small investors can easily divest from fossil fuels without sacrificing growth or yield by using small capitalization stocks and yield cos.

The relatively high yield of oil and gas stocks is the most difficult to replicate, even at its level of 2.41%, which the report describes as “not enormous.” According to the report, the only sector with a higher average yield is REITs (at 4.55%). REITs have a total market capitalization of less than a third of oil and gas stocks, so it would be impossible for more than a fraction of large investors to replace their oil and gas holdings with REITs.

The Instructive Case of Coal

In contrast to oil and gas, the report makes the point that because the market capitalization of coal companies is much smaller, divesting from coal alone is much easier than divesting from oil and gas. The report states that “Coal equities are less than 5% the total value of oil and gas equities, and have already trended down nearly 50% in the past five years... as a result, divesting from coal would be much easier then divesting from oil and gas.”

The report's author Nathaniel Bullard, told me in an interview that divesting from coal would have been more difficult just three years ago. He says, “US coal has had clear indicators of future change in place for a while. … Some coal equities have lost 90% of their value since 2011... This much diminished size means that... the same number of shares will represent a much smaller portion of an investor's overall portfolio relative to 2011.”

Hold High, Sell Low?

To put it more bluntly, investors who have already lost their shirts in coal stocks will have a much easier time selling their much-diminished holdings today than they would have when coal stocks were at their peak. Ironically, it's easier to sell low and buy high than vice-versa, especially for investors who manage large pools of money.

It does not take a multi-million dollar salary to know that waiting until your stocks have fallen by half before you sell is a suboptimal investment strategy. Despite past “clear indicators of future change” and lower estimates of future coal demand due to air pollution regulations in the coal industry, institutions like Stanford are only now beginning to divest from the sector. Most have not yet budged.

Are Oil and Gas Next?

The report begins with a quote from an executive who describes the divestment movement as “one of the fastest-moving debates I think I've seen in my 30 years in the markets”. If this fast-moving debate leads to fast-moving divestment, the sheer size of institutional oil and gas holdings would lead to a scale of the selling that could easily drive down prices of oil and gas stocks as fast as coal stocks have fallen over the past few years.

The divestment movement was only in its infancy when coal stocks peaked in 2011, so divestment has been only a minor contributor to their decline. Bullard attributes most of the decline to fundamental factors, such as low gas prices and (to a limited extent) wind power in the US, and concerns about air pollution in China.

That said, the long term fundamentals of oil and gas are not favorable. Industry costs are rising as producers shift towards unconventional sources such as tar sands and tight oil and gas which are extracted with relatively expensive techniques such as hydraulic fracturing (“fracking”). Meanwhile, high fuel prices are beginning to reduce average driving distances in mature markets such as the US and Europe while the declining costs of efficiency technologies such as hybrid and electric vehicles further lower demand. In the fastest growing vehicle fuel market, China, air pollution concerns have led the government to aggressively promote “new energy” vehicles, particularly hybrids and EVs.

Natural gas faces increasingly inexpensive competition in electricity markets from wind and solar generation. That, combined with technologies such as storage, smart grid, demand response, and better transmission which make it easier and cheaper for these variable sources to supply a larger portion of electricity demand with less reliance on dispatchable generation such as natural gas, hydropower, and biomass-fired electricity.

The fundamentals of all fossil fuels will be further undermined if the world ever makes a concerted effort to rein in carbon emissions. At the moment, the prospects for large scale regulatory moves seem dim, but at some point the increasing costs in terms of falling crop yields, widespread and severe heat waves and droughts, ocean acidification and the like will lead to political action. At this point it will almost certainly be too late to avoid significant economic and human costs from climate change, but that does not mean that it will not help us avoid even greater damage. And the longer we delay taking substantive actions to curb greenhouse gas emissions, the more draconian those actions will have to be. Drastic moves to curb carbon emissions will have even more drastic effects on the fundamentals of fossil fuel industries.

Conclusion

In part because it is so hard for large investors to exit fossil fuels, it is unlikely that a majority of such investors will move to divest before they have lost a large portion of their current holdings to price declines driven by the fundamental factors outlined above and selling from more motivated investors.

Some of the factors listed above, such as concerted political action to curb carbon emissions, may take a long time to be felt. Other factors, such as the declining cost of renewable energy and efficiency technologies and the increasing costs of fossil fuels are moving energy markets today.

When these factors will begin to hurt oil and gas stocks is unclear, but the coal industry shows that, although divesting is hard, it does not pay to wait too long.

This is where the analogy to replacing fossil fuels in your commute by buying an electric car breaks down. With electric cars, the more people own them, the easier and cheaper they will be to use: growth in charging infrastructure will rise with the adoption of plug-in vehicles, while higher volumes should help bring down their initial cost.

In contrast, it pays to be first rather than last when divesting from fossil fuels. While it is possible to be too early, at some point the worsening fundamentals of fossil fuel industries and/or a large scale divestment movement will undermine the value of all fossil fuel stocks. Those who divest sooner will have much more money to invest elsewhere than those who delay because divesting is just too hard.

Fortunately, small investors have it easy. Divesting, for once, is a place where the small investor has the advantage on Wall Street.

This article was first published on Renewable Energy World, and is republished with permission.

September 07, 2014

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

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 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.

September 05, 2014

Capital Pacific Bank: Free Market Alternative with a Conscience

Not A Bankster

By Jeff Siegel

In the long, slow recovery from the 2008 financial collapse, the banking industry has increasingly been regarded as a buglight for the untrustworthy.

The Libor (London Interbank Offered Rate) scandal brought banking corruption to the front of the news, and showed the world a huge ethical hole that had burned through the middle of major banks.

In a 2012 essay entitled “Is Banking Unusually Corrupt, and If So, Why?” Financial analyst, Circuit Court judge and University of Chicago Law School Lecturer Richard A. Posner laid out the reasons why the system might foster unethical behavior.

"The complexity of modern finance, the greed and gullibility of individual financial consumers, and the difficulty that so many ordinary people have in understanding credit facilitate financial fraud, and financial sharp practices that fall short of fraud, enabling financial fraudsters to skirt criminal sanctions,” Posner said.

The public embraced a depression-era term to show its feelings of distrust and disgust.

“Banksters.”

A portmanteau of “bankers” and “gangsters,” the term was first used in 1933, but embraced anew when people saw what had become of their assets. Trust in banks sank.

Seventy-eight percent (78%) of people surveyed in the Consumer Banking Insights Study believed big banks were fully to blame for the financial crisis of 2008 and the subsequent recession. Thirty one percent (31%) of those people said they didn't trust big banks with their money even though they were already customers of one.

Smaller banks and credit unions started to become more attractive to disaffected customers as a result, and America's credit unions recently passed 100 million members, according to the Credit Union National Association (CUNA).

“[It's] the unique structure - not-for-profit, member-owned cooperative - of credit unions that gives them the ability to offer better rates and member-focused service,” CUNA said in a statement in August.

Beyond local banks and credit unions, Americans looking to bank differently have yet another option: the B Corp Bank.

A bank with a philosophy

Benefit Corporations and Certified B Corps are companies that are committed to responsibility beyond providing shareholder value. They have to uphold certain environmental standards, labor standards, and tax standards; and are bound to provide something more than just profit.

We recently took a look at B Corps and liked what we saw.

With more than 1,000 corporations submiting to B Corp certification, a select group of banks has begun to gravitate toward the philosophy, too. Earlier this summer, the sixth bank attained Certified B Corp status.

It's a public company, too.

Portland, Oregon's Capital Pacific Bank (OTCBB:CPBO) was founded in 2003 as a local bank to serve the needs of local businesses. In the intervening decade, it has grown into a full-scale financial institution that also has a mission of sustainability and community involvement.

B Labs has given CPB a score of 98 out of 200 on the B Corp certification scale. The lowest score allowed to keep certification is an 80, so it is closer to the low end of the scale than the high. However, it's only been certified for a couple of months, so its score can improve with each monthly review. It's also on par with the Business Development Bank of Canada, another Certified B Corp bank.

At the end of 2013, CPB had $239 million in total assets, and net income of $1.8 million, or $0.69 per share, the highest annual earnings in the company's history. It had double digit growth in both deposits and loans, and an 8.8% return on equity for the year. It closed out the year with a book value per common share of $8.36.

“Many banks are dealing with sluggish loan growth due to lackluster demand, low-interest rates, and increasing regulatory and compliance costs,” Mark Stevenson, CEO and President of Capital Pacific Bancop wrote in the company's annual report to shareholders. “Unlike many of our peers, we’ve been successful in achieving growth in our loans, deposits and net interest income in spite of these headwinds, and our profits have grown to record levels, putting us among the top performing banks in the Pacific Northwest.”

It's also worth noting that Capital Pacific Bank has only one single physical location. This was chosen to diminish its footprint and streamline its operations, and it shows that CPB is in tune with broader trends.

Branch closures in the U.S. hit its all-time highest level in 2013, with 1,487 branch locations closing over the course of 2013. This is the most significant decline ever recorded by SNL Financial, a financial market analysis firm.

Since the crisis of 2008, banks have increased their efforts in mobile and online banking services to cut any overlap in service. If a customer can deposit his checks and manage his finances online, he would have no reason to go to his local branch and waste several hours of his precious time.

Time is money, after all.

So Capital Pacific bank is keeping it small and local, while adhering to more stringent regulations outlined by B Labs. It's a new kind of bank for a post-crash economy.  And from a free market perspective, I like seeing this kind of alternative.

 signature

Jeff Siegel

Full Disclosure: I currently own shares of SCTY.

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

September 04, 2014

Trina Thrives On Solar Financing

Doug Young

logo_trinasolar[1].gif

Investors were applauding a new announcement by Trina Solar (NYSE: TSL), after it announced a deal that would see it help to finance and build a massive solar power farm in southwest Yunnan province. The deal should indeed help Trina generate big sales for the near-term, as it involves construction of a farm with huge capacity of 300 megawatts of power. But I’m just a bit wary of this kind of development, which will also see Trina pay most of the bills to build the facility.

This kind of creative financing, which sees solar panel makers take big stakes in plant developers and then sell their own panels to the projects, is good when many sophisticated long-term buyers are available to purchase those finished plants upon completion. But China is hardly such a market, and it’s far from clear that anyone will be ready to purchase this massive new solar farm from a Trina-controlled entity once construction is complete.

According to Trina’s new announcement, the company is taking a 90 percent stake in Yunnan Metallurgical New Energy Co, which will build the new plant in the southwestern Chinese province. (company announcement) Three local partners will hold the remaining 10 percent in the company, whose farm will become the biggest solar power generating facility in Yunnan province.

No financial terms were given, which is slightly unusual as this investment is likely to be quite costly. To put things in perspective, the 300 megawatts in new panel orders Trina is likely to get from the deal are equivalent to nearly a third of the panels it shipped in its most recent reporting quarter, when it generated $519 million in revenue.

Thus if panel prices remain relatively constant, this new plant could generate some $171 million in sales for Trina over the construction period, most likely the next 1-2 years. That means Trina’s investment in the developer should total nearly $200 million, again invested over the next couple of years. That’s not a small sum for solar panel makers like Trina that are still struggling under big debt burdens following a prolonged downturn for their industry.

Despite that risk, investors cheered the news and bid up Trina shares by 5.6 percent after the announcement. It’s probably worth noting that even at their latest closing price of $13.23, Trina’s shares are still nearly 30 percent below their peak reached back in March when solar shares were soaring on hopes for a rapid sector recovery. Since then those hopes have been tempered by new punitive anti-dumping tariffs on Chinese solar panels exported to the US, and signs that the EU could take similar steps.

All that said, let’s return to the main point, which is that this kind of self-financed plant construction is a risky proposition. This kind of model got former industry pioneer Suntech into big trouble, and ultimately set off a chain of events that led to the company’s bankruptcy. Rival Canadian Solar (Nasdaq: CSIQ) has used the model to build smaller plants in Canada, and Yingli (NYSE: YGE) earlier this year set up a similar $160 million fund to build solar plants in China.

Canadian Solar’s model has worked in part because most of the plants it has built are in Canada, where big institutional investors exist to buy such plants after their completion. China is still largely an untested market in that regard, and it’s quite clear that many local state-run enterprises are participating in these new projects to help Beijing meet its ambitious targets to build up the country’s solar power.

Perhaps this new farm is well-designed and a strong long-term buyer will recognize that fact and purchase it after its completion, providing big profits for Trina. But it’s equally possible the plant will run into unforeseen problems, which could easily leave Trina with headaches as it figures out what to do with the massive facility.

Bottom line: Trina could be left holding a big pile of problematic debt if its plan to build a massive new solar plant in southwest China runs into difficulties or fails to find a long-term buyer.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

September 01, 2014

Tesla's China Strategy Charges Up At Unicom Outlets

Doug Young

Tesla Logo
Tesla plugs in
with Unicom

Despite disappointing progress in China’s plan to put hundreds of thousands of new energy vehicles on its roads by next year, American electric car maker Tesla (Nasdaq: TSLA)has made remarkable progress despite its late arrival to the market. The company has won its strong initial results though a smart combination of savvy marketing and initiatives to encourage building of necessary infrastructure to support its buyers.

The latest of those initiatives saw Tesla last week announce a partnership with Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier, to install charging stations at hundreds of Unicom outlets nationwide. (English article) As a result of these and other efforts, Tesla has been the lone player so far to succeed in China’s broader consumer market, an area that will be critical to achieving Beijing’s goals.

Other Chinese aspirants like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), SAIC (Shanghai: 600104) and Geely (HKEx: 175) would be wise to follow this example, allocating big funds to forge partnerships and create similar marketing campaigns to convince Chinese consumers that electric vehicles (EVs) are not only good for the environment, but also fun to drive.

Beijing has been pushing hard to put more new energy vehicles on its roads, in a bid to clean up the nation’s air and develop new technologies. Yet despite generous subsidies and other incentives, the nation currently only has about 78,000 such vehicles on the road – far less than the 500,000 that Beijing had originally targeted by 2015.

A big portion of those are buses and taxis purchased by local governments and other state-owned enterprises, whose decisions that are often motivated as much by politics as by economics.

What’s really needed to jump-start sales is development of the consumer market. Just last week, Beijing announced yet another round of incentives to attract consumer buyers, saying it would stop levying sales tax on 17 new energy car models. (English article) The move complements existing direct subsidies that are already available to buyers of such vehicles. But consumers remain wary, not only because of high prices but also over image issues and lack of supporting infrastructure.

Tesla’s success story goes back to the vision of its founder, Elon Musk, who realized that special marketing and other efforts would be needed to get consumers to accept EVs. He realized such cars are seen as experimental technology that often comes with problems, and that consumers would worry about lack of necessary infrastructure like charging stations and maintenance facilities.

The company proceeded to tackle the problem by targeting the high end of the market, selling cars with a starting price of $70,000. Targeting such wealthy consumers allowed the company to use the most advanced and reliable technology, and also to market itself as an elite brand.

That strategy has worked very well in status-conscious China, where Tesla only began taking orders last year and made its first high-profile delivery in April at an event that coincided with the nation’s biggest auto show. During that time, the company had embarked on a slick campaign highlighting its state-of-the-art technology, combined with a trendy angle that appealed to people wanting to become the first to own the latest cool and expensive gadget.

As a result, a number of China’s high-profile elite were among the first to sign up as buyers when Tesla delivered its first EVs, including the owner of the Lifan soccer team and the founder of Autohome, China’s biggest online car website. Musk further boosted his company’s profile by holding high-profile events where he personally delivered the first batch of cars to their new buyers, creating buzz through a slick campaign that was widely followed by domestic media.

Since then the company has worked hard to maintain its momentum and build up its order book, with an aim of selling thousands of cars in its first year. In its latest initiative, Tesla announced the new Unicom partnership last week to make charging its cars more convenient. Under that deal, Tesla and Unicom will build charging posts at 400 Unicom outlets in 120 cities, as part of Tesla’s broader commitment to spend hundreds of millions of dollars on such stations in China.

This kind of high-profile announcement, combined with its previous savvy marketing campaign, is helping Tesla to succeed despite an arrival to China that’s already several years behind more aggressive domestic names. Some of those names, including BYD and Geely, should think hard about investing big money not only in product development, but also in high-profile marketing and infrastructure campaigns if they hope to find success in the broader consumer market.

Bottom line: Chinese new energy car makers need to invest more money in marketing and infrastructure to copy the success of Tesla in the market.

  Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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