October 09, 2014

Do Falling Alternative Energy Funds Returns Signal Danger?

By Harris Roen

Green Mutual Fund Returns Falter

Returns for green mutual funds have slid as of late. Longer term, however, alternative energy MFs are still showing strong gains. All MFs are in positive territory for the past 12 months, and 6 out of 14 funds are up double digits. Three year returns have faired even better, showing an annualized return of 14.3% on average.

Short term, however, almost all the funds have given up a significant amount of their recent gains. For example, Firsthand Alternative Energy (ALTEX), the MF with the best one-year returns, gave up 6.1% of its gains in September. In fact all MFs are trading down in the past month, and 11 out of 14 funds are in the red for the past quarter…

Alternative Energy Mutual Fund Returns

Alternative Energy ETFs Lower Gains

Alternative energy ETFs are down substantially from the levels they were at earlier this year. ETFs are up over 9% on average in 12 months, but this is much below the 28% average gains ETFs had in June, and the 65% average annual returns ETFs were seeing in November 2013. All ETFs are down for the month, and 15 out of 17 show losses for the quarter.

The ETF with the best one-year return is Guggenheim Solar (TAN), up over 30% in the past 12 months. This is not surprising, considering TAN holds many high-flying solar stocks, including SolarCity (SCTY), Enphase Energy (ENPH) and SunPower (SPWR)…

Alternative Energy ETF Returns


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.

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Oil and Gas

October 08, 2014

Investing In Water Desalination

By Jeff Siegel

The million-dollar manicured lawns of Montecito, CA have withered, died, and gone to seed.

The polo fields are little more than dust now, and many have traded the good china for paper plates so as to avoid using the dishwasher.

There’s no doubt about it — Mother Nature doesn’t care if you’re rich or poor, black or white, fat or skinny. When she lays the smack down, we all feel it. And there is no better example of this than the debilitating drought that’s wringing the Golden State dry.

Of course, for those who can afford it, it’s not all doom and gloom.

Turns out the richest one percent in one of the wealthiest California zip codes is battling the drought with fat wads of cash.

While the “regular people” are forced to deal with the first-world problems of dry lawns and unwashed cars, the big money of Montecito is having its liquid gold trucked in from other regions. Exact locations are still a bit of a mystery.

Of course, trucking in all that water isn't cheap. One unit of water (748 gallons), which used to cost less than seven bucks, will run you up to $80 now. Still, when you consider what it takes to collect, maintain, clean, and deliver that water, $80 isn't really all that much.

No More Golf Courses

One of the reasons the Southwest is having so much difficulty with the drought is not necessarily because of climate change, but because of the lack of a real free market for water.

If folks in the American desert had to pay a price that directly correlated with the cost of bringing fresh water to those regions — regions where it doesn't really belong to begin with — they would be paying a lot more and wasting a lot less.

I suspect that at $80 a unit, there would be far fewer grassy lawns in Phoenix and certainly not as many public golf courses in Palm Springs. As well, the agricultural communities in those regions would all be on drip irrigation, every home would be equipped with rain barrels, and waterless urinals would be found in every single mall, restaurant, and government building from Santa Cruz to San Antonio.

The bottom line is that while we all swoon over oil and gold, it's rare to find folks, particularly investors, who understand just how valuable water is.

Truth is, pitching water investment opportunities has never been easy. Most investors find it to be a boring subject, and unless there's a drought, no one's really interested. Hell, even when there is a drought, few seem to care.

But the way I see it, if you're looking for a steady, long-term investment opportunity, there's one sector you should be drooling over: desalination.

Making Out With Salma Hayek

Now, I'll be perfectly honest: I don't think desalination in the United States is a pressing issue. Or rather, it wouldn't have to be a pressing issue if we just used water a little more responsibly.

But I'm a realist, and I know that asking Americans to responsibly use water is like me asking Salma Hayek to make out. I can make the request, but it's not going to happen.

So instead of lamenting rejections, we should capitalize on them. And when it comes to water scarcity, a great way to do that is by tapping the desalination sector. After all, the most recent data suggests the global desalination market will enjoy an 8.9% CAGR from 2013 to 2018. Not bad.

As a side note, desalination is actually a pretty expensive adventure. A recently approved desalination plant in San Diego will cost $922 million (and I'm sure it'll creep up closer to $1 billion after cost overruns), and that'll provide the city with 7% of its drinking water.

In any event, you still have to strike while the iron's hot. And in a world of scarce water resources, desalination is scorching.

Get Exposed

Most of the bigger plays in desalination are not pure plays. I'm talking about companies like GE (NYSE: GE), Veolia Environment (NYSE: VE), and Acciona (OTC: ACXIF).

If you're looking for more of pure play, there's Consolidated Water Co. (NASDAQ: CWCO), which builds and operates desalination plants and water distribution systems throughout the Caribbean. There's also Tetra Tech (NASDAQ: TTEK), which, while not a pure play, is a solid player in the water space and also builds desalination plants in the United States.  Finally, there's Energy Recovery, Inc. (NASDAQ: ERII), which sells energy recovery devices used in desalination and other high pressure industrial processes.

Of course, you can also get some exposure to water and water infrastructure through water ETFs, such as the Guggenheim S&P Global Water ETF (NYSE: CGW), First Trust ISE Water ETF (NYSE: FIW), and the PowerShares Water Resources ETF (NYSE: PHO).

Now, for the record, I'm not telling you to drop everything and load up the boat with desalination plays and water ETFs. Just gain a little exposure here, because the truth is, severe droughts are likely going to be a regular occurrence for years to come. Might as well take advantage of the situation.

After all, it may not be long before you'll have to shell out $80 for 748 gallons of water, too.

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

October 07, 2014

Waste Management: Biogas with a Dividend

by Debra Fiakas CFA

The biogas industry has attracted a number of new entrants.  Blue Sphere (BLSP:  OTCQB) described in the recent post “Turning Potato Peels to Power” and RDX Technologies (RDX: TO, described here) are both newcomers to the biogas power generation.  Both companies show much promise and will likely grow dramatically over the next few years.  Shareholders are counting on the stock prices to follow.
Investors who are less interested in the big growth play and more interested in stability and current income are not left out.  There are larger, more established companies in the waste-to-energy market.  Covanta Holding (CVA: NYSE), which was discussed on the post “Big Player in Waste-to-Energy”, is one of them.  Its dividend yield is enticing and the stock has a very modest volatility as measured by beta of 0.10.  However, I concluded that Covanta is overbought.  The stock trades at a multiple of 35.3 times 2015 earnings, well above the average for the S&P 500 Index.
Fortunately, there are other choices for yield-hungry investors.  Like Covanta, Waste Management, Inc. (WM:  NYSE) got into the waste-to-energy business as a collector of wastes.  Based in Texas, the company operates a fleet of waste collection trucks and routes for municipal, commercial and residential customers.  While Waste Management still carts waste the landfills it owns, much of the waste is now sent through recycling and recovery processes to reclaim metals and extract energy from both organic materials.
Unlike Covanta that has been willing to own and operate, Waste Management has kept to what it knows best, waste collection and handling.  Instead Waste Management has used joint ventures to dip its toe into the waste-to-energy field. In March 2014, Waste Management announced a team-up with Ventech Engineers International, NRG Energy (NRG:  NYSE) and Velocys Plc (VLS:  LSE) to produce renewable fuel from methane gas coming from landfills.  Ventech and NRG will provide engineering and project management functions, while Velocys brings the gas-to-liquids technologies to the table.  Waste Management just has to keep the waste coming and make gas from its landfills available for processing.

Waste Management has converted about 17.6% of its sales to operating cash over the past three and a half years.  This sort of efficiency and profitability is critical for a capital-intensive operation.  Over half of the company’s $22.2 billion in assets are represented by plant, property and equipment.  Waste Management invests an average of $1.4 billion each year in new capital equipment and property improvements.  Free cash flow has averaged $1.0 billion per year over the last three years.  With such strong internal funds available, Waste Management is in a position to move aggressively in new businesses, including waste-to-energy projects.

WM offers a dividend yield of 3.2% at the current price level.  Although is not so impressive as the yield offered by Covanta even at its pumped up price, WM shares are trading at a more modest multiple of 19 times its 2015 projected earnings.  That is about on par with the average for the S&P 500 Index, making WM look quite affordable.  A review of historic trading patterns suggests the stock has developed considerable upward momentum, set off in late July by a triple top breakout seen in the 'point and figure' chart for WM.  The stock has been unfazed by the recent sell-off observed in the broader market in September and early October.  WM has continued its march higher without only minor pulls back from a new 52-week high set in mid September.  WM is also a fairly stable stock, with beta measure of 0.64.  Thus WM could give income-conscious investors an appealing dividend and a relatively stable and compellingly priced stock.  Oh, and you get some biogas with the bargain.

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.

October 06, 2014

Ten Clean Energy Stocks For 2014: September Swoon

Tom Konrad CFA

Worries including the conflict with ISIL, Ebola, and economic slow-down in Europe, sent the stock market down in the month to October 3rd, with small cap stocks and clean energy stocks falling even farther than the large cap S&P 500.  My 10 Clean Energy Stocks for 2014 model portfolio weathered the storm relatively well because of its emphasis on defensive and income stocks. 

Since the last update, the model portfolio was down 4.8%, compared to 5.5% for small cap stocks (as measured by the Russell 2000 index ETF, IWM) and a 9.8% decline for clean energy stocks, as measured by PBW, the Powershares Wilderhill Clean Energy Index.  The relative strength of the model portfolio was in spite of significant weakness in foreign currencies.  The Canadian Dollar, Euro, and South African Rand fell 3.3%, 3.4%, and 5.8% for the month, dragging the model portfolio down 2.8% more in US Dollar terms than in local currency terms.

Since portfolio inception on December 26th, 2013, the model portfolio is up 1.5% in dollar terms, and 3.8% in local currency terms.  The small cap stock index was down 3.9%, while the clean energy stock index eked out a tiny gain of 0.3%.

indexes chart
Stock market trends down in September. Image source Yahoo! Finance.

Individual Stock Notes

The chart and discussion detail the performance of individual stocks in the 10 Clean Energy Stocks for 2014 model portfolio, along with relevant news items since the last update.
10 for 14 - October 3 2014

(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: $13.77.  YTD Total US$ Return: 4.2

Sustainable Infrastructure REIT Hannon Armstrong paid its regular $0.22 dividend for the third quarter.  The REIT has a goal of paying dividends equal to 100% of distributable income, which were $0.20 in the first quarter, and $0.22 in the second quarter.  I expect third and fourth quarter distributable income to be sequentially higher as the company deploys capital from its $75 million April secondary offering.  This implies that we can expect a small increase in December's fourth quarter dividend, which I expect to be approximately $0.24.

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$4.32. YTD Total C$ Return: -7.2%.  YTD Total US$ Return: -11.7%

Green building company PFB re-authorized its normal course issuer bid to purchase up to 50,000 shares of its own stock over the next year.  Over the past year, the company repurchased 19,500 of its shares at an average price of C$4.92.  Given the current price of C$4.32, I would expect it to step up these purchases.

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$4.21.  YTD Total C$ Return: 27.0%.  YTD Total US$ Return: 20.9%

Independent power producer Capstone Infrastructure announced strong second quarter operating results based on higher wind production and increased income from its British water utility, Bristol Water. The results were generally in line with analysts' forecasts, but Scotiabank increased its price target for the company to C$4.50 from C$4.00 while keeping its "Market Perform" rating.  

Last week, Capstone closed C$76 million financing for its 25 MW Goulais wind farm which is under construction in Northern Ontario.

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$5.54.  YTD Total C$ Return: 16.7% .  YTD Total US$ Return: 11.1%

Waste heat recovery firm Primary Energy Recycling did not release any significant news since the last update.

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: €12.99. YTD Total  Return: -0.04% .  YTD Total US$ Return: -9.2% 

Bicycle manufacturer and distributor Accell Group continued to decline because of worries about the European economy and the declining Euro.  I think the current weakness is leading to an excellent buying opportunity, especially since the company has been diversifying its revenue geographically with a significant push into the United States.  The company signed a deal with US sports and outdoors retailer REI to distribute its Ghost bikes in the US, and E-bikes, one of Accell's strengths, seem to be accelerating on this side of the Atlantic.

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$13.23.  YTD Total C$ Return: 29.3% .  YTD Total US$ Return: 23.1%.

Leading transit bus manufacturer New Flyer paid its regular monthly dividend of C$0.0475 but did not release any significant news.

7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64Low Target: $8.  High Target: $16.  No Dividend.
Current Price: $4.44  YTD Total US$ Return: -22.8%.

The stock of energy performance contracting firm Ameresco fell in sympathy with other small cap stocks, reversing gains from the previous month.  I continue to think AMRC presents an excellent buying opportunity at the current price.

8. Power REIT (NYSE:PW). 
12/26/2013 Price: $8.42Low Target: $7.  High Target: $20.  Dividend currently suspended.
Current Price: $10.12 YTD Total US$ Return: 20.2%

Solar and rail real estate investment trust Power REIT advanced strongly during the month.  Norfolk Southern Corp. (NYSE:NSC) and its subleasee Wheeling & Lake Erie Railway filed motions for summary judgment in the civil case in which they are trying to prevent Power REIT from foreclosing on their lease of 112 miles of track from a Power REIT subsidiary.  Power REIT also filed a motion for summary judgment, and both motions (along with many other court documents in the case can be found on the Power REIT website.

The stock action seems to imply that some investors expect that something of substance may come out of the summary judgment, or from the mediation which the parties have entered into at the Court's urging.  The parties are extremely far apart in the case, and so there remains a good chance of going to trial in early 2015.  In any case, the judge seems to be pushing for as quick a resolution as possible, which gives shareholders good reason to believe that the case will come to some sort of conclusion in months rather than years.

9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17Low Target: $8.  High Target: $25.
No Dividend.
Current Price: $8.93. YTD Total ZAR Return: -19.3%. YTD Total US$ Return: -26.6%

Global provider of software as a service fleet and mobile asset management, MiX Telematics stock decline for the month was entirely due to the declining South African Rand.  The was not any significant news about the company, but a good, in-depth article on the company appeared on Seeking Alpha with the thesis that the stock is near a bottom.  Note that Seeking Alpha Pro articles are only available for free for a month, so if you plan to read the linked article, you should do so in the next week.  The author provided excellent background and detail about the company.

[Note: I've reversed the order of Power REIT and MiX Telematics in the chart above in order to group the two growth stocks (MIXT and AMRC) together.]

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$0.31   YTD Total C$ Return: 10.7% .  YTD Total US$ Return: 5.4%.

Renewable energy developer and operator Alterra Power acquired ownership of 684 thousand shares of Greenbriar Capital Corp (TSXV:GRB) and a similar number of warrants in payment for a US$1 million debt owed to Alterra as the result of a previously terminated joint venture.

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$0.015   YTD Total C$ Return: -81.3% .  YTD Total US$ Return: -82.1%
Terminal US$ Return -57% (when I said to sell on June 3rd.)

Geothermal power developer Ram Power's stock fell further in very active trading.  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: 77.7%.

Wind project developer Finavera held its annual general meeting (AGM), but did not release more details about its plan to purchase California residential solar installation marketing firm Solar Alliance of America prior to the meeting.  I checked in with CEO Jason Bak by email on September 18th, and this is what he had to say about the meeting:

We couldn’t publish anything in advance of the AGM because of the stage of DD [due diligence] that we’re at – I don’t feel confident presenting accounts or projections until the audit in complete (ETA end of [September]).  We did however, discuss the opportunity with shareholders at the meeting and had a vote on a motion from the floor for the approval of the acquisition, based on the successful completion of DD and the approval of the stock exchange.   The resolution passed with ~85% approval of approximately 12MM shares voting (~32% of shareholders, which is a good turn out).
I will be putting out a company update on the transaction shortly.  Things are progressing well and the projections look impressive, though they are continuing to be refined.

I have not seen the promised press release about the annual meeting or any more details on the the results of due diligence.  Given Bak's track record, it would have been surpising if the press release about the AGM had materialized.  It's also likely that he was being overly optimistic about how long the due diligence would take.  I expect that the timeline for the deal to buy Solar Alliance will also slip significantly before it closes.


The recent declines in a number of clean energy stocks are creating buying opportunities.  In this list, I think Accell, Ameresco, MiX and PFB are currently very attractive. I'm also seeing buying opportunities elsewhere in the sector, such as biodiesel producer FutureFuel Corp (NYSE:FF), which I recently wrote about here.

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

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.

October 05, 2014

FutureFuel, Present Buying Opportunity

Tom Konrad CFA

FutureFuel Corp. (NYSE:FF) manufactures chemicals, biofuels (mostly biodiesel), and other biobased products.  About 60% of revenues have historically come from the Chemicals unit, with the balance of 40% coming from the Biodiesel unit. Both units saw sharp declines in revenues over the last two quarters for reasons that seem likely to be temporary (at least in part.)  The stock has sold off sharply as a result, falling from the $18-$21 range this spring to its $12 recent price


The entire biodiesel industry has been suffering from the expiration of the biodiesel blender's tax credit and the long-delayed release of the EPA's renewables fuels requirements. For the first time since they went into effect in 2007, the EPA proposed to cut the amount of biofuel that oil refiners must blend into their products, known as the Renewable Volume Obligations (RVO).  The ensuing controversy (with biofuels producers arguing against cuts against strong oil industry opposition) has led the EPA to delay the release of the 2014 target. 

According to Jim Lane, Publisher of Biofuels Digest in an interview, the EPA is directed to release the annual RVO by November first of the prior year.  That means that the 2014 RVO are already over 11 months late.  Lane expects them to be released this month.  The other major incentive for biodiesel is the blender's tax credit (BTC), a $1 per gallon credit given to fuel blender for every gallon of biodiesel blended with any amount of petrodiesel.  This credit expired at the end of 2013, and has not been renewed.  Most observers believe that it will not be renewed until the lame-duck session of Congress after the election in November, during which renewal is a possibility.  Past renewals have been retroactive: In 2013, FutureFuel received a $2.5 million benefit from the retroactive reinstatement of the BTC for 2012.

The lack of the BTC and long delay of the RVO have led to a tough climate for both biodiesel producers and blenders.  This is despite several positive developments Lane has observed.  He says the popularity for biodiesel is high, and more and more companies are approving biodiesel blends for use in their vehicles.

Without the incentives, FutureFuel reduced biodiesel production dramatically in the second quarter, as did most biodiesel producers.  This lead to dislocation in the market for biodiesel feedstocks: grease and oils.  Lee Mikles, FutureFuel's President observed in the second quarter conference call:
The feedstock availability is more robust right now than it had been... earlier in the year. You had a lot of feedstocks going offshore, it appeared to us, especially in the grease markets. ... [T]here’s been a big dislocation in the market all of a sudden that has dropped these feedstock prices pretty dramatically. With soy coming down so dramatically, it helps a lot because that’s the easiest feedstock to use if anybody uses it. Typically we don’t because it’s too high priced, but all of a sudden you’ve got this unlocking of feedstocks kind of across the board because everything kind of track soy, more or less. ...

I think there’s big opportunities in the back end of the year if you have the storage to be able to take it, which we do.
With the RVO likely to be released this month, and FutureFuel having been stockpiling cheap feedstock for the last few months, I expect that the fourth quarter will be extremely profitable for FutureFuel's biodiesel business.  Demand will be very high as customers scramble to fulfill their RVO in the last three months of the year.  If the BTC is renewed retroactively during Congress's lame duck session, we will see an added boost to profits in late 2014 or early 2015.


FutureFuel is also a manufacturer of specialty chemicals, and that side of the business has also been suffering.  In this case, the problems have been mostly "self-inflicted," as Mikles described them. 
[W]e are a chemical plant and our efforts to implement new chemical growth has not been what we’d hoped for. We’ve really struggled to bring up a new proprietary herbicide intermediate plant and in executing sales for new customers – not existing, new customers on the laundry detergent additive. These have terrific potential, but we have not delivered on them so far.

In addition, we had hoped to have a refined glycerin plant operating in the second quarter, but we were not able to make that happen. The expectation, though, is that that plant will be ready in the not-too-distant future. The timing of that is really uncertain, but I can say that it is progressing positively at this point.

So we continue to see declines in our larger contracts – that’s not anything new, that’s continued to press forward, but we endeavor to replace that, those reductions, and to build our product portfolio. We do remain optimistic about the future prospects.
While I don't have the expertise to evaluate the future prospects of a chemical plant, this sounds like it should also lead to significant business improvement in the next few quarters. 

Insider Sentiment

When evaluating small companies, I put special weight on management and other insiders putting their own money on the line.  While an insider might sell stock because they need the money for other reasons, the only reason for an insider to buy is because they think the market price undervalues the company's current prospects.

According to SEC filings, insiders were last selling the stock in March, at around $20 a share.  There have been no sales since then, but an Executive Vice President bought 1500 shares at $16 a share in May, and a director bought 5,000 shares at $14 in August.  Since the price is currently $12, I think we can reasonably expect more insider buying after third quarter results are released and insiders are again able to trade the stock.


FutureFuel has two major business segments, and the stock has fallen by almost half since its peaks in March and April.  The EPA's release of the 2014 RVO this month, the possible renewal of the BTC during Congress's lame duck session, and the likely improvements in the company's Chemicals business over the next few quarters all lead me to expect strong increases in the company's profits over the next few quarters.

The current price of $12 seems likely to be a relatively short lived buying opportunity.  The recent downtrend could easily be reversed if the 2014 RVO are higher than most observers expect, or by less dismal than expected third quarter results, when they are released in November.  

Even in the current climate, FutureFuel remains profitable and has a strong balance sheet.  If Federal incentives for biodiesel are removed permanently, the biodiesel industry will survive as feedstock prices fall to reflect the drop in subsidized demand.  If that his the case, FutureFuel will likely be a consolidator, with the opportunity to purchase biodiesel production capacity at pennies on the dollar from its less well-capitalized competitors.

Disclosure: Long FF.

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.

October 04, 2014

Turning Potato Peels To Power

by Debra Fiakas CFA

The series on waste-to-energy continues with Blue Sphere, Inc. (BLSP:  OTC/QB), a relatively new entrant to the biogas power generation market.  Blue Sphere is focused on converting principally food waste to power using anaerobic digestion technology.  In May 2014, Blue Sphere started construction on a bio-digester and power generation facility near Charlotte, North Carolina, that will turn potato peelings and apple cores into 5.2 megawatts of power.  Duke Energy (DUK:  NYSE) has been lined up to buy the power when the plant goes operational sometime before the end of 2015.

Management expects to repeat its success at the North Carolina site in planning and integrating food waste-to-energy plants at other locations around the world.  A smaller 3.2 megawatt plant is planned in Johnston, Rhode Island where most of the supply chain relationships and financing arrangements are already in place.  Blue Sphere also recently entered into a memorandum of understanding for a new site in Boston, Massachusetts.  In its home country of Israel Blue Sphere has signed a preliminary agreement for a 5.0 MW biogas plant at a site provided by its partner in the project, government-owned Environmental Services Corporation.  The company’s development portfolio now holds 60 megawatts of potential power generation.

Blue Sphere has yet to generate revenue and profits.  The company’s management team led by CEO Shlomi Palas, has a plan to build the top-line even before its planned facilities in the U.S. become operational.  Palas and his team recently lined up a deal to acquire seven operational biogas power plants in Italy, generating one megawatt of power each.  All seven plants are profitable and are expected to begin contributing to Blue Sphere revenue and earnings by the beginning of 2015.  Another nine plants similar in size and profitability are the due diligence stage.

The waste-to-energy industry in the U.S. is not as mature as in Europe.  Development has been largely limited to the agriculture sector where small, privately-held system integrators address local and regional demand from dairy and other animal owners.  There seems to be room in the U.S. market for new players with alternative business models.  The USDA estimates that there is enough waste supply for 11,000 individual biogas plants in the U.S., while there are only 2,000 in operation.

It seems timely for Blue Sphere to penetrate the market with a food waste-to-energy model.  Several states have imposed restrictions on the largest food waste generators.  Massachusetts passed landmark regulations requiring generators of over one ton of food waste per week to find compost or biogas alternatives to landfills.  Generators must file certificates of their plans by October 2014 and then be fully compliant with the alternatives by 2016.  Connecticut and Vermont have already taken action to impose maximum landfill dumping rules for food waste generators.  With state and local policies directing food wastes away from landfills and towards recycling alternatives such as biogas generation, the current market conditions could not be better for Blue Sphere.

Crystal Equity Research recently published research on Blue Sphere in the Focus Report series.  The investment case in the report identifies Blue Sphere’s promising business case, but argues the stock does not appear to reflect growth opportunities or management’s progress in executing on the strategic plan.  Blue Sphere is still at a pre-revenue stage, thus is it not possible to value the company on a multiple of revenue or earnings.
One option is to consider the company’s power generation portfolio.  There are 7 megawatts that appear to be coming on-line in the next few months and another 53 megawatts in Blue Sphere’s development portfolio.  The closest comparable we have for a waste-to-energy power producer is Covanta.  It was noted in the article “Big Player in Waste-to-Energy” on September 19th that Covanta (CVA:  NYSE) has a mixed build-own-operate business model that is something like that of Blue Sphere.  Covanta is using municipal waste rather than the higher-energy food waste as feed stock, generating about 1,444 megawatts of power annually.  We could use Covanta’s ratio of Market Cap to Power Generation Capacity as a valuation method ($1.9 million per MW).  That rule would imply a future market capitalization for Blue Sphere of $13.3 million based on the company’s pending acquisition of 7 megawatts in Italy or $114.3 million on its entire development portfolio of 60 megawatts.

By comparison to Covanta, Blue Sphere is a much smaller company with a great deal to prove.  The Crystal Equity Research report suggests the stock is speculative and may only be appropriate for investors with a long-term investment horizon and high tolerance for risk and volatility.  Any valuation exercise should take those elements into consideration.  Still trading at $7.1 million market cap, Blue Sphere seems like a stock to watch carefully.

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. Crystal Equity Research does not have a rating or price target for BLSP.  The stock is discussed in a Focus Report published by Crystal Equity Research on September 24, 2014.

October 03, 2014

Positive Signs For For The Chinese Solar Sector

Doug Young

Just months after tapping financial markets for nearly $250 million, solar panel maker Trina (NYSE: TSL) has just announced another plan to raise a similar amount as it tries to take advantage of improving sentiment towards its sector. Such fund-raising would have been unthinkable as recently as a year ago, when recovery of the solar panel sector was far from certain following a prolonged downturn. In a relatively positive sign, Trina’s latest fund-raising plan didn’t trigger a major sell-off in its shares, indicating investors are more confident of the company’s and the sector’s future prospects.

Meantime in other major solar news, the sector got a nice boost with word that Hong Kong-listed real estate Evergrande (HKEx: 3333) plans to get into the business of solar plant development with a major new investment. That move isn’t hugely surprising, since China’s real estate sector is now on the cusp of a major correction that is likely to crimp demand for the kinds of residential properties that Evergrande develops. In the absence of major new residential development projects, solar power stations looks like an interesting alternative to diversify the company’s business.

Both of these developments are generally positive for the solar sector, reflecting growing momentum for a new wave of solar plant building in China as Beijing offers strong incentives to encourage such construction. I’ve previously been a bit negative on developments so far, which have seen Trina and other solar panel makers personally finance much of the new plant development. But Evergrande’s decision to enter the space could mark the start of a new trend that may see more third-party developers join the movement from the real estate and other sectors where growth is stalling.

All that said, let’s begin with a look at Trina’s latest plan that will see it raise about $200 million through an offering of bonds and new American Depositary Shares (ADSs). The company will raise the money by selling $100 million in senior convertible notes (company announcement), and another 7 million ADSs that could raise more than $90 million based on the company’s latest share price. (company announcement)

The sale would follow a similar exercise that saw Trina raise about $250 million through the issue of convertible notes and ADSs back in June (previous post), bringing its total fund raising over the last 4 months to nearly half a billion dollars. The company joins rivals Canadian Solar (Nasdaq: CSIQ) and Yingli (NYSE: YGE), which have also recently returned to global capital markets after a freeze-out of more than 2 years during a prolonged sector downturn that sent major players Suntech and LDK into bankruptcy.

The most positive thing about Trina’s latest announcement is that it didn’t spark a major sell-off of the company’s shares, which fell just 2.7 percent after the news. That’s a sharp contrast from the June fund-raising announcement, which sparked a much larger drop of nearly 10 percent. Trina’s shares have gained back most of those losses since then, indicating investors are regaining confidence in the sector’s longer term growth prospects.

Meantime, Evergrande is reportedly getting set to enter the solar power development space through plans to invest a whopping 90 billion yuan ($14 billion) in 3 major solar plants over the next 3 years. (Chinese article) The investment figure looks a bit too large to me, though Evergrande does have a history of making exaggerated announcements and it’s also possible the media report isn’t completely accurate.

Regardless of the actual investment, the broader trend does look somewhat encouraging, as it indicates that some major third-party private sector players may be taking an interest in helping to fund Beijing’s ambitious plans to develop China’s solar power sector. We’ll have to wait and see if others from slowing sectors like real estate and steel manufacturing join the trend, which could provide some nice new business for solar panel makers. The big risk is that many of these companies have little or no experience in such development, which could lead to problems in both plant finance and construction.

Bottom line: Trina’s new plan to raise $200 million and Evergrande’s plan to enter solar power development are both positive signs for the sector, reflecting a more sustained return of investor confidence.

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.

October 02, 2014

Trina Solar's Second Convertible Bond

By Beate Sonerud and Sean Kidney

China’s Trina Solar (TSL)is issuing US$100m of convertible bonds with 5-year tenor and 4% annual coupon, with semi-annual payments. An extra US$15m could be raised, as Trina has given the underwriters a 1-month window to buy additional bonds. Guess they are waiting to gauge demand. Underwriters are Deutsche Bank, Barclays, and Credit Suisse, with Roth Capital Partners as co-manager.

The bonds can be converted to shares (American Depositary Shares, meaning they are listed in the US) at an initial price of US$14.69 per share. Currently, Trina’s shares are trading at US$11.40, after falling sharply due to concerns that Japan, the world’s second largest solar market, will reduce subsidies to solar – which would mean reduced business demand for Chinese solar companies, including Trina. So shares will have to rise substantially before it’s attractive for bondholders to convert the bond.

Trina Solar is a leading manufacturer and service provider in PV solar – therefore we consider it a pure-play company aligned with a climate economy. However, this bond, as their previous offerings, are not labelled green bonds and consequently there is no second party review on the green credentials of the use of proceeds (Trina reports that the proceeds will be used for general corporate purposes, which may include development of solar power projects, expansion of manufacturing capacity and working capital). We do think there is room for labelling also for solar companies like Trina, as it would make it easier for investors to identify the investments. It is also a much simpler process to label solar than non-pure play companies - check out our solar standards for details of what we’d expect from a labelled solar bond.

This is Trina’s second convertible bond offering so far in 2014, following a previous issuance of US$150mn in June. Convertible bond issuances have been a popular financing choice for solar companies this year. We are including them in our climate bond universe because, although they are more complicated than vanilla bonds, they are still bonds until converted.

———  Beate Sonerud is Policy Researcher and Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

October 01, 2014

Geothermal Should Ride The Duck Curve

Meg Cichon

As the geothermal industry limps along year after year, a utility insider strongly suggests that it changes its tactics.

For years the geothermal industry has relentlessly boasted that it is a baseload resource, meaning it provides stable power similar to a coal or natural gas plant, except without all of those pesky carbon emissions. While upfront costs to develop a plant are higher than other renewable sources, geothermal leaders say that this baseload aspect makes it a more attractive resource in the long run since the grid needs more stable power as increasing amounts of intermittent renewables enter the landscape.

Though this may sound like bankable reasoning, Dave Olsen of the California Independent System Operator Corporation (CAISO) said geothermal needs to change its strategy to make any sort of progress in the energy market. During the opening session of the 2014 Geothermal Resources Council (GRC) Annual Meeting & Geothermal Energy Association (GEA) Geothermal Energy Expo in Portland, Oregon, Olsen warned the crowded room that they might not like what he had to say.

“Geothermal can add significant value to the portfolios of most utility companies in the western U.S., but you guys are not getting it done,” said Olsen. “You are not going to win a levelized cost competition with wind and solar. When you can’t win with the rules as they are, then you have to change the game.”

Stop Spinning the Same Record

In order to be a successful competitor in the energy market, Olsen said the geothermal industry must stop selling itself as a baseload power because baseloads are actually becoming a problem. (Note: See the GRC 2014 conference signage above, which highlights geothermal's baseload advantage.) Using California as an example, Olsen said that the closure of big resources like the San Onofre Nuclear Generation Station (SONGS) is actually making the grid much more stable and allows for the use of more solar and wind.

“Baseload has gone from being valuable to being problematic as we add more wind and solar,” said Olsen. “When we shut down other fossil plants we will avoid curtailing thousands of megawatts of wind and solar.”

California faces severe midday energy over-generation, as evidenced by the famous “duck curve” chart below. In 2013 alone, California was forced to curtail more than 19 GWh of pre-purchased renewable energy in order to run its inflexible baseload sources, and this number will likely rise in the coming years. Adding more of these resources will only make this situation worse, said Olsen.

duck curve

This "duck curve" shows the increased overgeneration risk and peak ramping needs (potentially 13 GW within three hours) that occur as more solar is added to the grid. Credit: CAISO

“This is the reality in California today — even if we modernize the grid and add storage we are going to have too much solar midday,” he said. “In the next 10 years this is going to be situation everywhere. Geothermal needs to get ahead and not contribute to this problem.”

Flexible Is the New Baseload

To address this problem, the grid actually needs more ancillary services — flexible power that can be ramped up and down as needed. While utilities look to decarbonize their systems and abide by EPA rules, geothermal needs to step up and market itself as the solution. Developers must design projects to operate flexibly with a wider range of services — a good example of this is Ormat’s (NYSE:ORA) Puna geothermal project in Hawaii. Local utility Hawaii Electric Light Company (NYSE:HE) uses the plant for auxiliary power and is able to increase or decrease services when necessary.

The geothermal industry must educate decision makers so that they recognize this benefit, which will takes years of work, said Olsen. To make real progress, geothermal players need to work hand-in-hand with other renewable technologies.

“The good news is that wind and solar are in similar situations. Other renewable technologies are your allies, not your enemies — you are all vying for a diverse, complimentary energy portfolio. You have much more to gain by marketing and lobbying with them,” said Olsen. “If you don't believe me, count the geothermal megawatts that have come online in last 20 years and compare.”

Spoiler alert: It's much less than wind or solar.

Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on RenewableEnergyWorld.com, and is republished with permission.

September 29, 2014

Casella Back In The Dumps, But Ready To Pick Up?

by Debra Fiakas CFA

Casella Plants Flag in Waste-to-Energy

The solid waste collection and disposal industry has been transformed by the building enthusiasm for waste recycling.  Founded in 1975, Casella Waste Systems (CWST:  Nasdaq) has been around to experience a lot of change and has been quick to get on the bandwagon.  The company is a self-described recycler and resource manager as well as a solid waste collector.

Granted the company is still heavily focused on its conventional solid waste business.  Casella management has outlined a four-point plan to grow the company and increase profits.  Top on their ‘to do’ list is to find incremental landfill capacity.  They are also trying to create new efficiencies at each of the company’s thirty-five solid waste collection operations.  That is just the usually blocking and tackling tactics of an incumbent solid waste handler.

Casella[1].jpgHowever, Casella has become much more than an ‘old school’ garbage hauler.  Some years back, Casella added metals recovery and plastics recycling to its menu of services, at the same time establishing a new revenue stream from the sale of recovered materials.    The company operates sixteen recycling facilities in its home region in the northeastern U.S.   Additionally, Casella operates nine landfills, four of which have been outfitted with methane gas recovery facilities.  The company actually produces 25 megawatts of power for local users.

Casella has also stepped into the organics-to-energy business.  Operating as Casella Organics, the company has established an anaerobic co-digester at a dairy farm in Massachusetts.  The plant co-digests dairy manure and food residuals from nearby sources.

A little over a year ago in April 2013, I wrote about Casella’s financial performance here.  Although operating cash flows have been at times ample, the company has had trouble delivering profits to its bottom line.  At the time I did not have a great deal of confidence in the stock to deliver returns in the near-term.  The stock actually took off a few months later, rising by as much as 50% after management provided guidance for sales growth in a range of 2.1% to 4.3% in the fiscal year ending April 2014.  Earnings before interest, taxes, depreciation and amortization (EBITDA) were guided in a range of $91.0 million to $95.0 million.

Alas, the stock lost all of its gains as the year progressed.  Casella was able to make good on its plans to grow revenue.  Sales in the fiscal year ending April 2014, were 9.3% higher than the previous year.  However, the company stubbed its collective Big Toe on profitability.  EBITDA was reported as $86.4 million, well below the guided range.  Since EBITDA is a critical factor in CWST valuation, disappointment increased with each passing quarter.

CWST is now trading near its 52-week low.  A review of historic trading patterns suggests the stock is oversold.  There has been a very strong bearish trend building in CWST since June, after the company reported fiscal year 2014 financial results.  It seems implausible that the stock could decline from its present level just under $4.00 per share.  Then again, shareholder equity has been eroded to a deficit and long-term debt levels have been rising.  Coupled with persistent net losses and shrinking profit margins, the weakened balance sheet does not provide a great deal of encouragement for investors who might be tempted take advantage of the cheap price for CWST.
That said, we note that the stock has been at the current price level four times in the last five years, rising each time by an average of 75%.  The company has a well established customer base and has been able to convert 11% of its sales dollar to operating cash.  If an investor has confidence in Casella’s regional stronghold in waste collection and hauling as well as the new flag the company has planted in the waste-to-energy business, then it is time to take a long position in CWST wait patiently.

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.

September 28, 2014

SolarCity or Vivint Solar?

By Jeff Siegel

In as soon as five years, you could be living right next door to a power plant.

Actually, even closer. The power plant could be operating from right inside your home.

I'm serious. Take a look...


This is a backup battery system installed in a home that's powered by domestically generated electrons, courtesy of the biggest nuclear reactor known to humans: the sun.

And according to super genius Elon Musk, within five to 10 years, every set of solar panels installed by SolarCity (NASDAQ: SCTY) will come with a battery pack.

Nighttime Solar

Musk's cousin and SolarCity CEO Lyndon Rive recently spoke at a private meeting in New York, where he announced that due to the economies of scale that will soon come from Tesla's (NASDAQ: TSLA) new battery manufacturing complex, SolarCity's solar power systems, with the new battery system installed, will be able to produce energy cheaper than the local utility company.

This means powering your home with solar day and night, and at a price lower than what your utility charges.

That's a pretty bold claim, but it's one I wouldn't sleep on. Musk and his ilk are not the type to fall short, nor are they the type of folks you should bet against.

The truth is, beyond the battery system, SolarCity is taking the appropriate steps to drastically slash the cost of solar altogether.

A few months ago, I told you about the company's acquisition of solar manufacturer Silevo. This deal will allow the company to lock in a steady supply of low-cost, high-efficiency panels that'll enable it to stay competitive against a rise in new U.S. start-ups as well as low-cost producers from China.

Then, just last week, the company 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 company reps, this new product can increase generation capacity on flat-roof buildings by 20% to 50% per building.

This technology now 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. It will also help the company expand its reach into the commercial solar market.

The Best Part

Now here's the best part...

SolarCity has been getting knocked down a few pegs over the past week or so. Some believe the new Vivint Solar IPO, which is a competitor to SCTY, is luring SCTY investors away with a cheaper share price.

But while I'm also looking forward to picking up a few shares of Vivint, this isn't a reliable comparison. If anything, I would caution investors against picking one over the other and instead recommend maintaining positions in both — especially now that SolarCity fell below the $60 mark. That's a bargain compared to Deutsche Bank's $90 price target and Credit Suisse' $97 price target.

Point is, there's plenty of room for more than one company to grow and profit. And there's no reason you can't ride both.

Full Disclosure: I currently own shares of SCTY.

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

Jeff Siegel Signature

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

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