May 06, 2016

The BioEconomy Earnings Season Roundup: REGI, GPRE, BIOA, ADM

Jim Lane

Q1 earnings season for the advanced bioeconomy kicked off this week, with reporting from Green Plains, ADM, REG, and BioAmber. That’s an ag giant, an ethanol monster, a biomass-based diesel dominator and a fast-upcoming renewable chemicals maker. Between the four, we have a good opportunity to check the sector’s health.

Overall, markets were unhappy today, knocking down BioAmber 10 percent, while Green Plans took a 6 percent tumble, and REG and ADM were both down, though by lesser amounts. The oil price environment, not pretty today, provided most of that shareholder joy.

The Digest’s Take

Ethanol, challenging times. Biodiesel is looking strong with gallons up, prices not far off and margins improving. Renewable chemicals look good in terms of pricing, production is ramping up at BioAmber and sales jumped 31% QonQ.

Green Plains (GPRE): Ethanol margins weak, cash position strong, 2016 looking better.

Green Plains reported a net loss of $24.1 million, compared with net loss of $3.3 million for Q1 2015 — this, on revenues of $749.2 million for Q1 2016 compared with $738.4 million for Q1 2015.

Production. Green Plains produced 247.0 million gallons of ethanol compared with 232.5 million gallons for Q1 2015.

EBITDA: Q1 earnings before interest, income taxes, depreciation and amortization for Q1 was 2016 was -$5.8 million compared to $19.2 million for Q1 2015.

Cash and debt: As of March 31, Green Plains had $400.7 million in cash and cash equivalents, and $146.6 million available under revolving credit agreements. Total debt outstanding was $776.6 million.

Crush margin. The consolidated ethanol crush margin was $0.5 million, or $0.00 per gallon, for Q1 2016 compared with $14.9 million, or $0.06 per gallon, for Q1 2015. The consolidated ethanol crush margin is the ethanol production segment’s operating income before depreciation and amortization, which includes corn oil production, plus inter-company storage, transportation and other fees.

Navigating rough waters. “The margin environment remained weak, providing little opportunity to generate a profit in the first quarter,” said Green Plains CEO Todd Becker. “We focused on maintaining our strong liquidity position to remain well-positioned, not only during this cyclical downturn, but also for future growth opportunities within our supply chain.

Marketing & distribution guidance remains intact. Green Plains noted: “Our marketing and distribution segment reported an operating loss for the quarter which was primarily related to the valuation of inventories held for forward business that is fully hedged. We anticipate the profits on these positions will be realized over the remainder of this year and operating income for the marketing and distribution segment will remain in the $25 to $30 million range for fiscal 2016.”

2016 environment improving. “The forward ethanol margin environment has improved since the beginning of the second quarter and we have hedged a portion of our future production,” said Becker. “We believe the ongoing growth in global and domestic ethanol blending will continue to drive better market fundamentals for the industry and are optimistic the margin environment will improve during the balance of 2016.”

Over at Green Plains Partners, “Our business model, which includes minimum volume commitments, insulated the partnership from challenging market conditions and provided cash flow stability that enabled us to increase our distributions for the second consecutive quarter,” said Becker. “We expect a recovery in volumes during the remainder of the year as our sponsor continues to ramp production back up at its ethanol plants.”

GPP income and cash. First quarter 2016 net income for GPP was $12.2 million on adjusted EBITDA of $13.9 million and distributable cash flow of $13.3 million. GPP had $5.6 million in cash and cash equivalents, and $49.0 million available under the partnership’s revolving credit facility. On January 1, 2016, the partnership acquired certain ethanol storage and leased railcar assets located in Hereford, Texas and Hopewell, Virginia from Green Plains Inc. for $62.3 million. The transaction was financed using the partnership’s revolving credit facility and cash on hand.

ADM (ADM): “Challenging market conditions,” sees “opportunities in 2nd Half”

In Illinois, Archer Daniels Midland reported operating profit was $573 million, down 36 percent from $892 million for Q1 2015. Net earnings for the quarter were $230 million.

Agricultural Services decreased $118 million compared to a strong quarter last year amid lower North American export volumes and margins, fewer global merchandising and transportation opportunities, as well as unfavorable Global Trade Desk merchandising positions.

Corn Processing increased $2 million as strong results for sweeteners and starches were offset by weaker lysine results and lower ethanol margins. Sweeteners and starches results improved $56 million to $141 million as the business continued to perform well, with an improved cost environment driven by strong capacity utilization. Bioproducts results were down from $42 million to a loss of $12 million, due primarily to the continued challenging conditions in the global lysine market. In addition, ethanol margins continue to be impacted by high industry production levels that caused inventories to build throughout the quarter.

Oilseeds Processing decreased $231 million compared to a very strong year-ago period, as higher Argentine crush run rates weakened global margins. Crushing and origination operating profit of $120 million declined $214 million from last year’s high levels. Global soybean crush and origination results were down significantly due to lower global margins resulting from increased Argentine soy meal exports and significantly reduced U.S. meal exports. In addition, lower softseed crush volumes and weaker Brazilian commercialization, which slowed throughout the quarter, negatively impacted results.

WILD Flavors and Specialty Ingredients earned $70 million on solid performance from WILD Flavors and higher results from specialty ingredients.

South America on the mend? ““Challenging market conditions continued in the first quarter, particularly affecting Ag Services. The first half of the year continues to present a challenging environment,” said CEO Juan Luciano. “However, we are cautiously optimistic that reduced South American soybean and corn production could bring improved soybean crush margins and merchandising opportunities in the second half of the year.”

Acquisitions. ADM acquired a controlling stake in Harvest Innovations — enhancing ADM’s plant protein, gluten-free ingredient portfolio. The company also purchased a corn wet mill in Morocco to expand the global sweeteners footprint.

Divestments. ADM reached an agreement to sell our Brazilian sugarcane ethanol operations.

BioAmber (BIOA): “February problem” now overcome; 31% QonQ uptick in sales, and “ASP unchanged despite lower oil prices.”

In Canada, BioAmber announced Q1 revenues of $1.5 million, an increase of 297% over Q1 2015 and up 31% over Q4 2015. The increase in revenue was driven by volume growth in product sales. Gross loss for the quarter ended March 31, 2016 was $1.6 million , compared to a gross profit of $57,000 for the same period last year. The loss was due to higher cost of goods sold resulting from Sarnia fixed costs and off-spec product reprocessing costs that were allocated to the cost of goods sold.

The Company recorded a net Q1 loss of $10.9 million compared to a net Q4 2015 loss of $8.4 million.

Production. Plant up-time averaging 70% in the last three weeks of the quarter; fermentation continued to meet targets for productivity, sugar yield and final concentration. The company disclosed “a production problem in February,” but said that “plant uptime and percentage of off-spec product improved significantly, reaching target levels in recent weeks”.

Pricing. The average selling price was unchanged from the previous quarter, despite lower oil prices.

Cash picture. Cash on hand was $14.1 million as of March 31, 2016 ;

Reaction from Fortress BioAmber: “We are making steady progress in ramping up Sarnia , from both a production and a sales perspective. Our transition to an operating company is complete and we are focused on reaching full production capacity and selling the output of the plant,” said CEO Jean-Francois Huc. “As we ramp up, the macro environment in which we operate is beginning to improve and higher oil prices could lead to greater demand for biobased products in the second half of the year,” he added.

REG (REGI): “Significant increase” in gallons sold, “better margin environment,” and “a more stable regulatory environment.”

In Iowa, Renewable Energy Group announced Q1 revenues of $305.6M on 98.0 million gallons of fuel sold, a gain of 63.7% in gallons sold compared to Q1 2015. Adjusted EBITDA for the quarter was $9.9 million compared to negative $30.2 million in the prior year period, without any adjustments for the 2015 Biodiesel Mixture Excise Tax Credit (BTC). Adjusted EBITDA for the first quarter of 2015, after giving effect to the retroactive reinstatement of the BTC, was negative $14.5 million.

Profits: The increase in gross profit was due to the significant increase in gallons sold along with a better margin environment. Gross profit was $25.1 million, or 8.2% of revenues, compared to gross Q1 2015 loss of $16.2 million, or 7.0% of revenues.

Production: REG produced 86.2 million gallons of biomass-based diesel during the quarter, a 42.1% increase.

Prices: The average price per gallon sold of biomass-based diesel decreased by 7.9% to $2.92 which was due to lower heating oil and RIN prices.

Cash: At March 31, 2016, REG had cash and cash equivalents of $164.1 million, an increase of $117.0 million from the prior quarter end. This increase was largely the result of collections related to the retroactive reinstatement for 2015 of the biodiesel mixture excise tax credit.

Reaction from Fortress REG: ”The REG team delivered solid execution in the quarter. We continued optimizing our fleet of plants while integrating our newest biorefinery in DeForest, Wisconsin and bringing REG Geismar back online,” said REG President and CEO Daniel J. Oh. “A more stable regulatory environment in the U.S. enabled us to focus on growing our business.”

Upcoming earnings seasons highlights

Pacific Ethanol, May 4
TerraVia, May 4
Codexis, May 9
Amyris, May 10
Biox, May 10
Dyadic, May 12
Evogene, May 19

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.

May 02, 2016

Ten Clean Energy Stocks For 2016 Spring Forward

Tom Konrad CFA

March and April were months of recovery for the broad market and for clean energy income stocks, but most clean energy stocks failed to participate in the rally.  By design, my Ten Clean Energy Stocks for 2016 model portfolio is heavily weighted towards income, recovering 9% in March and 6% in April so that it is now back in the black, up 0.8% year to date.  This puts it ahead of its benchmark, which is down 0.8% through the end of April.

I want to thank Aurelien Windenberger for stepping in with an interim update, now that I've switched to only writing these every other month.  While he does not follow all 10 stocks closely himself, he does follow many of them, and his comments on Terraform Global were particularly timely.  I hope they allowed some readers to scoop up shares of the stock I called one of the most compelling speculations I've seen in a long time when it was trading below $2.50.

I also hope readers paid attention at the start of March when I took the risk of making what may be the most bullish public call I've ever written:
In my decade and a half watching the stock markets, I have only seen as many compelling buying opportunities as I see today at the start of 2009. ...

I'm excited about most of the stocks on this list at their current prices, but Pattern (PEGI) and MiX Telematics (MIXT) all stand out as screaming bargains, while Terraform Global (GLBL) is one of the most compelling speculations I've seen in a very long time.

I can't say this enough: If readers have any cash still on the sidelines in this market, now is the time to buy.  Buy and keep reinvesting the extremely high dividends on offer until prices rise. 
I was cautious about when a rebound might happen, but said that the high dividend yields available from most of these stocks would more than compensate for the wait.  As it was, there was no wait (except for Terraform Global, where the wait was just a month.)  For the two months since the call, Pattern is up 26%, and MiX is up 18%.  The whole list, as well as the market in general (with the exception of clean energy growth stocks) did well, too.

Growth Stocks

Clean energy growth stocks fared less well.  My benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), was up only 1.3% over the two months, and remains down 12.8% for the year.  My three growth picks did better, up 12.0% over two months, but remain down 7.2% for the year through April as well.

Income stocks did better, with Global X YieldCo Index ETF (NASD:YLCO) up 14.8% for two months, and 4.4% year to date.  My seven income picks recovered slightly more (16.5%) from a worse starting point to end April up 4.3%.  The Green Global Equity Income Portfolio, which I manage, also rose substantially (13.3%) over two months and is now up a solid 7.9% for the year to date.

performance chart

The chart above gives detailed performance for the individual stocks.  Significant news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Forward Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
4/29/16 Price:  $21.00.  YTD Dividend: $0.381.  Forward Annual Dividend:$1.524 (7.3%) YTD Total Return: 2.4%

Wind Yieldco Pattern Energy's recent advance makes far more sense to me than its decline at the start of the year.  There was not any significant news in April, but the stock continued the advance it began in March.

Pattern will release first quarter results before the market opens on May 9th.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Forward Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
4/29/16 Price:  $22.71.  YTD Dividend: $0.46  Forward Annual Dividend: $2.10 (9.2%) YTD Total Return: 9.4%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners, unlike almost all the mainstream Yieldcos, is once again trading above its $22 IPO price.  This should allow new secondary offerings of stock and enable additional drop-downs of new wood pellet facilities from its private sponsor.  Such drop downs would likely allow Enviva to exceed its 2016 guidance for $271 to $2.87 of distributable cash flow and $2.10 of distributions per unit.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25. 
Dec 31st Forward Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
4/29/16 Price:  $14.35.  YTD Dividend: $0.4025.  Forward Annual Dividend: $1.62 (11.3%) YTD Total Return: -8.9%

Like Enviva, Green Plains is a new MLP and Yieldco.  The company's contracts with its parent, Green Plains (GPRE), also insulate it from the general level of economic activity and commodity markets.  However, this insulation is only as good as its parent's solvency.  While GPRE has a strong balance sheet, its ethanol operations are exposed to commodity markets, especially the oil price. 

With the oil price starting to recover, GPP's share price has begun to recover as well. 

On April 21st, Green Plains Partners again increased its quarterly distribution slightly, to $0.405 per share, payable to unitholders of record on May 6th.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Forward Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
4/29/16 Price:  $15.13.  YTD Dividend: $0.225.  Forward Annual Dividend: $0.925 (6.1%) YTD Total Return: -9.4%

Yieldco NRG Yield (NYLD and NYLD/A) has also been recovering nicely.  I believe this is partly due to the general recovery of the sector, and partly due to growing confidence that the Yieldco still has the support of its sponsor, NRG. 

The company will report its first quarter results on May 5th.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Forward Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
4/29/16 Price:  $2.91.  YTD Dividend: $0.275.  Forward Annual Dividend: $1.10 (37.8%). YTD Total Return: -41.9%

Yieldco Terraform Global's sponsor, SunEdison (SUNE), finally entered bankruptcy protection in June. Speculation abounds as to if it and its sister Yieldco, Terraform Power (TERP), might be drawn into a SunEdison bankruptcy, but I believe that the debtor-in-posession nature of the bankruptcy makes the chances of this already unlikely scenario even more remote.

On April 21th, both Terraforms named Peter Blackmore as interim CEO, to replace the former CFO of SunEdison, who had been serving in that role.  Blackmore was previously head for the Yieldcos' conflicts committees, and was previously unaffiliated with SunEdison.  Such steps to develop in-house management are part of the Yieldcos' moves to establish themselves as truly independent companies.  They also needs develop their own internal accounting- the reliance on SunEdison means that neither has yet filed its 2015 annual report, let alone their first quarter results.

Some of Terraform Global's contracts allow for termination in a SunEdison bankruptcy, and I believe that fear of such terminations is keeping investors away from the stock.  Even if such contracts are terminated, the termination does not erase the value of the power from its solar farms.  Some power purchasers may have the ability to renegotiate contracts with Terraform Global, but the market seems to be treating the company as if those renegotiations will lead to an end of payments.  That will not happen if the customers need the energy, which they do.  All these PPAs are recent, and were entered into by utilities that wanted to purchase the power.

Terraform also has a dispute with SunEdison over the purchase of 425 MW of Indian solar farms which now may never be completed.  SunEdison's bankruptcy throws into question what sort of compensation the Yeildco will receive for its down payments, but some such compensation is likely to be in order.

In summary, the situation at Terraform Global is mostly unknowns, but the company is belatedly making the right moves to distance itself from SunEdison.  The question for investors is, how much of the cash raised in the $15 per share IPO is owned by Terraform Global, either as cash, or as operating projects with buyers for the power.  While this is likely less than the $7.40 book value per share reported at the end of September, 2015, it's also likely far more than the current $2.91 share price.  Abengoa (soon to be Atlantica) Yield (ABY) is much farther along the path towards distancing itself from its (nearly) bankrupt sponsor, Abengoa.  ABY trades at approximately book value.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Forward Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
4/29/16 Price:  $19.40.  YTD Dividend: $0.30.  Forward Annual Dividend: $1.24  (6.2%). YTD Total Return: 4.1%

Clean energy financier and REIT Hannon Armstrong rang the closing bell at the New York Stock Exchange to celebrate Earth Day.  The fact that I bother to mention this is testament to the lack of any substantial news since the last update.  First quarter results will be announced on May 4th.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Forward Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
4/29/16 Price:  C$12.38.  YTD Dividend: C$0.293  Forward Annual Dividend: C$0.88 (7.1%) YTD Total Return (US$): 35.3%

TransAlta Renewables continues to be one of the strongest performers among Yieldcos, helped in part by the rising Canadian dollar, and partly by its continuing ability to tap the capital markets to fund further acquisitions.  The company reported its first quarter results on April 28th, with cash available for distribution per share growing 32% to C$0.37 from C$0.28 a year earlier, while dividends per share increased 16% to C$0.22.  This leaves plenty of room for the Yieldco to invest in new projects or raise the already generous dividend further.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
4/29/16 Price:  $9.72.    YTD Total Return: -4.6%

Advanced biofuel producer Renewable Energy Group (REG) benefits from both national and regional incentives which already give robust support to the biodiesel market and are likely to lead to a biodiesel boom in 2016 and beyond.  REG is poised to be one of the primary beneficiaries of this boom.

Iowa's House and Senate agreed to expand and extend state incentives in April, which will only add fuel to the fire when they are signed into law.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Forward Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
4/29/16 Price:  $4.08 / R2.30.  YTD Dividend: R0.02/$0.12  Forward Annual Dividend: R0.08 (3.6%)  YTD Total Return: -2.5%

Software as a service fleet management provider MiX Telematics continued to recover from its lows along with the oil price.  Fuel savings make MiX's solutions quickly pay for themselves, but in the current low fuel price environment, MiX is working to emphasize another substantial advantage of its services.  The company just launched an extended Hours of Service solution to help fleet managers improve safety by managing driving hours.

The company will announce its full year results for the twelve months ending March 31st before the market opens on May 26th.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
4/29/16 Price:  $4.47.  YTD Total Return: -23.7%

Energy service contractor Ameresco has been a consistent under-performer in this list.  This has mostly been the result of management under performance which the company is paying for in terms of poor results: A large Canadian contract outside their core business which they bid too aggressively for, and the acquisition of a energy monitoring software business which did not produced the results that they had hoped for. 

Low energy prices have also payed their part, something to be expected in a business that helps customers cut their energy bills, but I am beginning to wonder if this company's long term under performance has more to do with weak management than a cyclical downturn, as I previously believed. 

The company will also announce first quarter results on May 5th.  If a positive surprise sends the stock up significantly, I may take the opportunity to exit.  I love the company's core business of saving customers money through energy efficiency, but the company has failed for years to make that business as profitable as I hoped it would be.

Final Thoughts

Two months ago, I used this space to urge readers to buy, both because the market seemed generally undervalued, and also because of specific stocks which seemed (and proved to be) incredible bargains.  After gains for roughly 15%, I still think many of these stock are cheap, but I am slightly more cautious.  My favorite picks are currently Terraform Global and Green Plains Partners, which might be good places to redeploy cash when rebalancing other winners.

Long-term followers of this list are likely to have significant cash to deploy in the near future, since the buyout of Capstone Infrastructure (TSX:CSE, OTC:MCQPF) closed on Friday.  I recommended Capstone in 2014 at C$3.55 and again in 2015 at C$3.20.  The buyout by iCON Infrastructure Partners was for C$4.90, plus C$0.67 in dividends for 2014 buyers (a total 57% gain), and C$0.37 for buyers in 2015 (a 65% total gain).  These gains are somewhat offset by the 15% decline in the Canadian dollar since the start of 2014, and its 3% decline since the start of 2015.

Long term pick New Flyer (TSX:NFI, OTC:NFYEF) has also reached levels that have had me sell a significant portion of my stake both for rebalancing and because the high price has reduced its dividend yield below 2%.  When I confidently wrote that the shares were "worth at least C$12.26" in 2011 (they were trading for C$7.66) I never imagined I'd be selling for C$37 five years later.  I just like undervalued green companies with 8% dividend yields.  Who doesn't?


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.

May 01, 2016

First Solar's Surprising Strategy Switch

by Paula Mints

CdTe and crystalline manufacturer and project developer First Solar (FSLR) announced positive results for Q1 as well as a switch in strategy emphasis from deployment to module sales.

Honestly, revenues, positive net income and other financial metrics matter less in this case than the company’s strategy switch to module sales. Downward price pressure and margin compression along with continued aggressive pricing from China makes this move confusing. Cost leadership is mutable in the PV industry and it is difficult to imagine that First Solar will have an advantage in this regard for long.

First Solar has a history of abrupt strategy changes, typically with successful results. In the mid to late 2000s, when demand in Europe was at its peak, the company shut down module sales to the US and other countries and focused on sales into Europe. As demand in Europe slowed First Solar switched its strategy to projects, selling almost all of its module product to its systems division. Now, with continued margin compression, aggressive pricing and a seemingly stable utility scale market in the US the company switches back to a focus on module sales.

Lesson: Companies in all industries make decisions that lead to head scratching moments for observers. When a company with a strong and leading project business makes a dramatic strategic switch observers should ask themselves what the company sees happening to its project pipeline. Another equally important question is what is happening to the company’s project margins. Given traditional low bidding on PPAs and tenders, the answer may be: Get out while you can.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the April 30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

April 30, 2016

SunEdison: Giving Optimism A Bad Name

by Paula Mints

Potentially stranding a significant number of solar development plans as well as some assets, SunEdison (SUNE) finally took the step that many expected and filed for bankruptcy. Pondering where things went wrong for the troubled firm leads to a winding road of overexpansion, debt and the traditional sidekick of highly visible companies and people, hubris.

Hubris, of course, happens quite often in the corporate world and there is a long list of companies that were swayed by it – who knows, one is probably being swayed at this very minute.

In the solar industry, hubris and desperation are often intertwined. Solar companies operate in a reality that includes aggressive pricing, push-pull incentives and subsidies and end user/government expectations that are nearly impossible to meet if maintaining a margin is important. In this environment panic, desperation and expediency can lead to poor decision making while companies that become highly visible and envied can fall victim to their own PR and end up making decisions in a vacuum. The problem with vacuum decision making is that
it is almost always divorced from reality. Ignoring reality can, well, lead to bankruptcy.

In 2015 SunEdison delayed its filings and launched an internal audit. In 2016 though the internal audit found no evidence of fraud it found problems with the company’s overly optimistic outlook and its lack of sufficient controls and procedures as well as its untimely reports to its board.

This may be the first time that poor decision making and careless processes and controls have been blamed on optimism.

Blaming mistakes on executive optimism – even by inference, could give optimism a bad name and this would be a shame because healthy optimism is a good thing. Healthy optimism has kept many an individual and even companies afloat during tough times. Healthy optimism works hard to make its vision come true while not ignoring the potential of failure. Healthy optimism does not march over a cliff because it believes it can fly.

Blaming SunEdison’s current struggles on optimism and poor processes is a glaring understatement that soft peddles breathtakingly bad executive decision making.

Many a CEO has become tone deaf to warnings referring to those bearing cautious news as naysayers while being shored up by those who are paid well to agree. After all, when you are riding high people willingly agree with you. Once you fall these same people will be the first to say they saw the cliff you were heading towards as they enjoy watching you charge over its edge.

In the wider context, it will encourage those who believe the solar industry is hiding behind industry-wide unreasonable and unreasoning optimism something to point to – just as they still point to Solyndra.

In October we covered the SunEdison situation was covered from the perspective of company behavior following SunEdison’s acquisition by MEMC.  You can find that analysis including a detailed timeline of its history here.

To that timeline we now add:
  • 2016 January: TerraForm (TERP) shareholder Appaloosa Management sues to stop SunEdison’s acquisition of Vivint (VSLR).
  • 2016 March: Vivint cancels SunEdison acquisition.
  • 2016 March: US Justice Department launches an investigation into SunEdison’s financing activities and the SEC begins investigating the company’s disclosures to investors
  • 2016 April: SunEdison’s internal audit finds no evidence of fraud but plenty wrong with internal procedures
  • 2016 April, Vivint sues SunEdison over failed merger
  • 2016 April, SunEdison files for bankruptcy.
A short and incomplete list of solar companies that have failed includes Advent Solar, SunFilm, SpectraWatt, Abound Solar, Konarka, SatCon, Solar Millennium, SolFocus, Suntech, Abengoa (ABGB), Evergreen Solar, Q-Cells and now SunEdison. Almost all Chinese solar manufacturers built their companies and maintain their businesses on a mountain of debt. Some companies emerge from bankruptcy either through acquisition (Q-Cells and Suntech) or through restructuring – potentially Abengoa and SunEdison. Recovery is not a given.

A company strategy based on underbidding to win projects, growth that relies on highly public incentives to stimulate demand, poor expansion and investment choices and reliance on debt is operating in an unhealthy ecosystem.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the April 30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

April 29, 2016

Amyris Inks $100M+ Biofene Supply Pact

Jim Lane

In California, the Eco-Emirs of Emeryville, Amyris (AMRS) executed a five year Biofene supply agreement with a global nutraceuticals company.

Upping the ante from January

This new, long-term agreement replaces the parties’ one-year purchase agreement, which was previously announced on January 4, 2016. More on that deal here.

Under the new supply agreement, the mystery customer has agreed to a larger Biofene purchase in 2016 with an expected revenue contribution of approximately $9 million and to minimum annual purchase commitments in each of the remaining years of the agreement.

In addition, under the new agreement, Amyris is entitled to a quarterly value-share arrangement on the sales of the customer’s product made from the purchased Biofene. Amyris expects total revenue from the five-year agreement to be more than $100 million. In year-five of the supply agreement term, the agreement is projected to generate approximately $40 million of annual revenue, which Amyris expects will be renewed at that level in subsequent years.

A 2016 Farnesene Fiesta?

For biofene, the Brotas plant in now sold out through 2020. We look at Amyris’ 2016 horizons here.

The Amyris Story

John Melo discusses Amyris’ immediate horizons with The Digest and BioChannel.TV.

Also on BioChannel.TV, Amyris is the first company up in this episode from March Madness, 50 Hot Companies 50 Quick Takes, here.

The Amyris 2016 8-Slide Guide is here.

The Latest on Amyris Biossance is here.

Amyris debuts Pathways Program: access to its synthetic biology technology.

Reaction from Planet Amyris

“This agreement represents a new highly disruptive partner application for our flexible Biofene ingredient ─ which supports multiple broad-based market applications and further solidifies Amyris’s track record of helping solve partners’ supply and product margin needs by supplying cost-advantaged renewable ingredients that perform better than current supply sources,” said CEO John Melo.

“We are experiencing significant growth in demand for our Biofene and Biofene-derivative applications from large markets such as tires, industrial lubricants, solvents, and nutraceuticals. This demand growth is accelerating our mission to make renewable products mainstream while making our company sustainable.”

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.

April 25, 2016

Net Metering Is the Solar Industry’s Junk Food

Shoppers who bring reusable bags to the grocery store buy more junk food.

This example is part of a growing body of behavioral psychology research showing that when we feel good about ourselves for doing one thing right, we give ourselves permission to be careless in other areas.

The solar installation industry seems to be falling into the "reusable shopping bag" trap. Solar itself is the reusable shopping bag. The junk food is net metering.

Net metering is a simple, intuitive way to pay for solar generation at retail rates. But it puts solar companies on a collision course with regulators trying to protect non-solar customers from cost-shifting. Solutions to this conflict exist and have the potential to unlock an even brighter future for the solar industry.  

Net metering pays owners of distributed solar for their excess power generation at the same price they would pay for power from the grid. When solar is a small fraction of the generation on the grid, this is a great deal for utilities and other ratepayers: solar generation occurs during the day, when electricity demand is typically higher and wholesale prices are also high. This is crucial on hot summer days when air conditioners drive up peak loads.

Net metering becomes less attractive for utilities as solar penetration increases. Hawaii and California are seeing this already.

Because electricity transmission is hard to build and storage is expensive relative to electricity generation, supply must be locally and instantaneously matched with demand. When lots of generation comes from variable, price-insensitive resources like solar, the grid suffers from too much of a good thing. In the middle of the day, solar production starts to meet and eventually surpasses daytime peak demand, and the value of electricity falls. Low prices during the day mean that more flexible forms of generation need to make profits when solar production is low, increasing prices and the value of electricity at night and on cloudy days.

This process puts utilities and regulators in a bind. The conflict can hurt both sides of the utility-customer relationship.

The Nevada Public Utilities Commission’s decision to end net metering for both old and existing customers may seem like a victory for the utility, but it is a Pyrrhic victory at best. 

When only a small fraction of the electricity on the grid comes from solar (low penetration) in any part of the grid, net metering is a subsidy to the utility, not the net-metered customer. But rather than replacing net metering with something that would encourage distributed solar where it would be most useful, Nevada has driven solar installers from the state. 

The decision did the greatest damage to solar customers who had the rules changed on them retroactively, and many of them will now never recover their solar investments. It also hurt other ratepayers who might have wanted to go solar in the future, and robbed all ratepayers of the benefits of any such installations to the grid. They are also robbing the planet of an opportunity to cost-effectively reduce carbon emissions.

The retroactive removal of net metering is also increasing uncertainty among large-scale energy developers, who reasonably wonder if something similar could happen to them.

How the conflict over net metering can be an opportunity

Must solar companies’ gain be a utility loss? Hardly. The key is to learn from the principles of stakeholder capitalism and turn the seeming tradeoff into an opportunity.

Speaking at the 2016 Conscious Investors Summit, R. Edward Freeman, the academic director at the Institute for Business in Society of the Darden School and the University of Virginia, made the point that tradeoffs are a managerial failure.

Freeman explains that when you treat employees and managers like jackasses, with carrots and sticks, they start acting like jackasses. When you treat them like human beings who crave a sense of purpose, they work with passion and deliver creative solutions to seemingly intractable problems. 

The solar/utility conflict is far from intractable, but for now, both sides are acting like jackasses. Utilities deride net metering as a subsidy from customers who can’t install solar to those who can, while the Solar Energy Industries Association publishes principles stating that customers should always have net metering as an option.

Both sides should stop acting like jackasses and seize the opportunity instead to focus on the tradeoff.  

A solution already exists. This is the value-of-solar tariff, where solar customers are paid for the value of the electricity they produce at the specific time and place they put it on the grid.

Under a value-of-solar tariff, non-solar customers cannot subsidize solar customers (a common utility claim about net metering). By definition, under a value-of-solar tariff, solar customers are paid only for the value they bring to the grid. They won’t be subsidized by other ratepayers simply because they are only paid for the value they create.

Untapped potential

Not only can a value-of-solar tariff resolve the conflict between solar and non-solar customers, but it can also unlock opportunities for solar which are currently being squandered under net metering. 

Under net metering, the incentive is to install solar so that it produces the maximum possible amount of electricity. This means pointing the panels south, at latitude tilt. Under a value-of-solar tariff, the incentive is to produce as much value for the grid as possible, which often means pointing panels west or southwest, in order to help service peak air-conditioning loads on hot days, which usually occur in the afternoon. Such decisions depend on both the local climate and on the local loads on the grid.

They also depend on getting the value of solar right. This is where we need creativity from all parties working together.

The paradox of doing good

Few people expect much creativity from utilities -- although there are notable exceptions, especially when it is the regulator driving change.

The solar industry is another matter. Almost all solar companies portray themselves as working for the good of the planet, and most of those genuinely believe that is what they are doing.

That’s where the reusable bags conundrum comes in. The mental accounting that allows a shopper to offset junk food indulgence with shopping bag virtue also seems to be affecting the solar industry as a whole.

If the solar industry were a person, it would be thinking: “I’m doing something great for the planet, so I don’t need to worry about all the non-solar ratepayers my actions might hurt. As long as the greater good is being served, it’s not my problem.”

It’s a pity that solar companies, which are doing so much good for the planet by displacing fossil fuels, are falling into the same trap as shoppers who displace plastic bags with reusable, but then poison themselves with junk food.

More solar companies need to stop substituting doing good for being good, and start living up to their true ideals. Solar has the potential to help all users of electricity, not just those who can install it themselves. A value-of-solar tariff can unlock that potential, as long as we have the creativity and courage to take everyone’s interests into account.

Getting a value-of-solar tariff right will be tricky, but creativity in the pursuit of a greater good is precisely what stakeholder companies excel at.

If all parties work toward a well-calibrated tariff, everyone will have the incentives they need to get the most out of future solar installations. Solar companies will get more business deploying solar where it does the most good. Regulators will see that all ratepayers are treated fairly. Utilities will find that new solar is connected to the grid where it makes it easier, not harder, to balance supply and demand.

Some people will still want to install solar even where the new supply is difficult to integrate, but a value-of-solar tariff will give them the incentive to install it with electronics and storage that makes the new supply easier to manage, or the price will be low enough that it will make sense for the utility to make the changes needed to handle it.

This kind of dynamic tariff is also likely to catalyze demand management, energy storage, and other industries we have not even thought of -- all of which will add jobs, create value, and help unlock the potential of solar.

Perhaps the solar industry and utilities can both have their cake -- and eat it together.

April 21, 2016

Water Utilities Keeping The Flow In Cash Flow

Fiakas Water Utilities Keeping The Flow In Cash Flow

by Debra Fiakas CFA

After a long series of posts on suppliers of water infrastructure, from fire hydrants to filters and from taps to treatments, it is now time to look at the companies selling water.  The majority of water utilities is owned by municipalities and is beyond the reach of investors.  However, there is a clutch of publicly traded companies that peddle water as a business.

Which water utilities make sense to return hungry and risk wary investors?

A short list of publicly traded water utilities in the U.S. reveals a diverse group of large and small companies.  American Water (AWK:  NYSE) is by far the largest operation after reporting $3.2 billion in revenue in fiscal year 2015. American Water serves 1,600 communities in 16 states in the U.S. and Canada with potable water delivery and waste water collection. The smallest company in terms of revenue is York Water Company (YORK:  Nasdaq), which delivered $47.0 million worth of water to customers in Pennsylvania last year.

Water Utility Market SYM Sales Mill
American States Water California  AWR $458.6
American Water 1,600 communities in 16 states AWK $3,160.0
Aqua America PA, OH, TX, IL, NC, NJ, IN and VA WTR $814.2
California Water Service CA, WA, NM CWT $588.4
Connecticut Water Service Connecticut, Maine CTWS $95.9
Middlesex Water Company NJ, DE, PA MSEX $123.2
SJW Corporation San Jose, California SJW $305.1
York Water Company Pennsylvania YORW $47.0

After all the discussion of water system failure, water contamination and the need to treat water destined for our kitchen faucets, a review of water utilities must include a review of financial strength.  Some investors might scrutinize leverage ratios and profit margins.  I prefer to look at how good a company is at turning sales dollars into operating cash.  After all, it is operating cash that pays for capital investments.  The winner in my contest is Aqua America (WTR:  NSYE), which converted 45.5% of its $814.2 million in revenue in the last fiscal year to operating cash flow.  The least proficient cash builder in the group is American States Water (AWR:  NYSE), which only turned each sales dollar into 20.7 cents.  That is still an impressive cash conversation ratio and goes a long way toward supporting capital spending programs to maintain and improve water delivering infrastructure. 

SYM Sales Mill CFO Mill CFO/Sales
AWR $458.6 $95.1 20.7%
AWK $3,160.0 $1,180.0 37.3%
WTR $814.2 $370.8 45.5%
CWT $588.4 $144.6 24.6%
CTWS $95.9 $37.8 39.5%
MSEX $123.2 $39.3 31.9%
SJW $305.1 $97.3 31.9%
YORW $47.0 $18.5 39.3%



Aqua American may be the strongest in the group in terms of generating operating cash flows, but it is also among the most expensive stocks.  Its shares trade at 6.9 times sales - well above the group average of 4.7 times trailing sales.  The story is the same in terms of earnings and cash flows.  The supplier of water to the San Jose, California community, SJW Corporation (SJW:  NYSE), is the only one in the group that trades below the average in terms of sales, earnings, cash flows and book value. 

AWR 3.2 25.3 15.8 3.2
AWK 4.0 27.0 10.8 2.5
WTR 6.9 28.0 15.4 3.3
CWT 2.3 29.8 9.3 2.1
CTWS 5.4 22.4 13.9 2.3
MSEX 4.7 30.4 14.9 2.8
SJW 2.5 20.1 7.9 2.0
YORW 8.7 32.9 22.4 3.8

Average 4.7 27.0 13.8 2.8

The relative value of SJW is interesting, particularly given the apparent optimism that analysts have for the company’s future.  Analysts have projected slowing growth for water utilities over the next five years.  The average future growth rate for our group of eight companies is 6.6%, but SJW is at the top end of the range with a 14% projected growth rate. Middlesex Water brings up the rear with a 2.7% growth rate projection.

The ratio of Price/Earnings-to-Growth Rate provides a logic check for investors in comparing earnings multiples.  SJW wins this contest as well with a ‘PEG Ratio’ of 1.44 compared to the average of the group of 5.26.   Still the target PEG Ratio is 1.00 so it appears investors are paying a premium for the growth that SJW has to offer.

Earnings and growth are only part of the picture for water utilities.  All of them pay a dividend.  The forward dividend yield for our favorite SJW Corporation is 2.2%, which is exactly the group average.  So dividend yield should be considered right along with growth potential.  Utility stocks also typically offer shareholders lower risk than other sectors, justifying higher multiples relative to yield and growth.  The average beta for our group is a modest 0.42. 

SYM Yield Growth
AWR 2.2% 3.9%
6.58 2.63 1.67
AWK 1.9% 7.6%
3.55 0.82 0.65
WTR 2.2% 5.9%
4.79 2.58 1.87
CWT 2.5% 9.1%
3.29 2.21 1.73
CTWS 2.3% 5.0%
4.49 0.72 0.49
MSEX 2.2% 2.7%
11.24 6.18 3.39
SJW 2.2% 14.0%
1.44 0.34 0.30
YORW 1.9% 4.9%
6.71 3.96 2.84

Average 2.2% 6.6%
5.26 2.43 1.62

Considering dividend yield as well as growth and adjusting each ratio for risk, our favorite SJW still dominates the group.  Its PERGY (Risk Adjusted Price/Earnings to Growth Plus Yield) ratio is 0.30  -  the lowest in the group. The shares of SJW may be the best value in the group, but it is worthwhile to point out that Connecticut Water Service (CTWS:  Nasdaq) with its 2.3% dividend yield is in second place.   Connecticut Water also appears to be a strong operator with a 39.5% sales-to-cash conversion ratio in the last fiscal year.

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.

April 20, 2016

Biobased’s Hot Babes Hook Up

Comet, BioAmber in big cellulosic sugar partnership

Jim Lane

In Ontario, Comet Biorefining has signed an off-take agreement with bio-succinic acid producer BioAmber (BIOA) for cellulosic dextrose from Comet’s upcoming first commercial plant in Sarnia, Ontario. The dextrose will be produced from agricultural residues using Comet’s innovative technology.

The agreement also provides increasing shape to the development of an biobased industrial cluster in the Sarnia region of Ontario — a corn-growing region where farmers will provide agricultural residues which will be processed into industrial-grade cellulosic dextrose by Comet. In turn, BioAmber will be the offtake partner for those sugars, and use its own proprietary technology to produce biobased succinic acid and high-value derivative chemicals including 1,4-butanediol (BDO) and tetrahydrofuran (THF).

The off-take agreement also includes provisions for Comet to supply dextrose to future BioAmber manufacturing facilities and provides BioAmber with certain exclusive rights in the fields of succinic acid, BDO and THF. BioAmber itself is the subject of an historic set of off-take agreements, including those with Mitsui and Vinmar for global distribution of its renewable chemicals.

The partners also noted that Comet’s facilities can be built on a smaller scale enabling greater flexibility to locate production closer to biomass supplies and lower a region’s greenhouse gas footprint.

BioAmber investing in Comet

The companies disclosed that BioAmber had provided an equity investment in Comet in 2015 and its CEO Jean-Francois Huc is now joining Comet’s board of directors.

Where’s the feedstock?

The off-take agreement is the culmination of development work performed by Comet and BioAmber as part of BioIndustrial Innovation Canada’s recently completed cellulosic sugar study.

The one remaining question in the supply chain from cornfield to customer is how the supply-chain will be managed to assemble agricultural residues for Comet’s process.

Questions abound.

How these will be shipped, stored, avoid pre-fermentation or fire incidents that have been experienced at other cellulosic depots. How the payments will be made to growers, how the logistics of delivery will be arranged. How indeed the residues will be cleaned of dirt, dust, tennis shoes, rakes, combine harvester parts, metal scrap and other items that have come into cellulosic refineries from the field. Whether the bales will be square or round, how they will be tied and untied, where they will be stored from harvest to delivery to the factory gate.

How will the material be pre-treated at scale, how will it be chopped down into fragments small enough for the process to handle, at a rate and cost commensurate with the economics of the overall project?

How the greenhouse gas emissions will be calculated and audited, and how the process will be certified for sustainability — for those chemical off-takers of BioAmber’s interested in certifying to their own customers that these new materials are contributing to a low-carbon society, and by how much?

All examples of standard questions that companies must answer, for themselves or in partnership with logistics companies. It’s not the same as the corn or cane economy — not by the longest shot, and though Comet has doubtless with its partners in Sarnia and in the BioIndustrial Innovation Canada roundtables worked much of this out, we’ll all be awaiting more detail.

Front-end troubles have plagued the commissioning cycles of several cellulosic biorefineries — though they are not only making sugars but fermenting them into ethanol. So, these questions —although doubtless well advanced in terms of answers — are relevant and pertinent.

We expect that some of them may be answered as soon as the first week of June, when Comet Biorefining chairman Andrew Richard addresses ABLC Feedstocks 2016. Additionally, Sandy Marshall, board chairman of Bioindustrial Innovation Canada, will make an address.

Marshall will be presenting on two studies. The first: setting up the corn stover value chain from the farm to the mill for the Comet project in Sarnia. Cost, quality, storing, delivery, and more. The second: on establishing a farm Coop, the Cellulosic Sugar Producers Co-op. Sandy worked closely with the BIC team on completing these studies and has been involved in numerous farmer meetings as well.

Reaction from the principals

Andrew Richard, Chairman and Founder of Comet Biorefining, said, “Having off-take agreements in place with bioeconomy leaders like BioAmber demonstrates the market’s confidence in our technology and products. As a trusted feedstock partner, Comet is helping to build a successful bioeconomy hub in Sarnia, Ontario, close to plentiful biomass. We are extremely pleased to welcome Jean-Francois Huc as a member of our board.”

Jean-Francois Huc, BioAmber CEO commented, “We have tested many second generation sugars and Comet offers dextrose that is on par with dextrose from corn, both in terms of quality and price. Comet has proven this by operating a large demonstration plant in Italy, setting them apart from others. Comet has also put together a unique value chain in Southwestern Ontario, bringing together farmers, technology, off-takers and government. We are looking forward to participating in their exciting growth prospects.”

The Comet backstory

Cellulosic Sugar Producers Cooperative collaborating with Comet Biorefining to develop agricultural biomass supply chain

Comet to build 30K ton biomass sugar plant in Ontario

Comet Biorefining hires Rich Troyer, formerly of Coskata, as CEO

The BioAmber backstory

Mitsui invests $25M in BioAmber JV; raises stake, will “play a stronger role”

Renewable chemicals, disruptive cost: The Digest’s 2016 8-Slide Guide to BioAmber

BioAmber: Biofuels Digest’s 2015 5-Minute Guide

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.

April 19, 2016

Three Water Recycling Stocks

by Debra Fiakas CFA

The water series continues as we attempt to get arms around the very large market to package, deliver, purify, treat, and recycle water.  As the need for water increases with population and economic activity, the use of waste waters has become an imperative.  In this post we look at three companies helping to clean up, reclaim and otherwise recycle waste water.

Ecosphere Technologies, Inc. (ESPH:  PK) has introduced several water solutions that can be used in agriculture, mining, industry, or municipal applications.  The company’s flagship Ozonix Technology is a chemical-free system to recycle waste waters.  Instead, the system saturates the water ozone using hydrodynamic and acoustic cavitation and then destroys the cell walls of harmful micro-organism with electrochemical oxidation.  Even highly reactive bacteria can be wiped out through this process.

The Ozonix mobile system can be wheeled into even remote locations such as mines or oil and gas well sites.  The company recently signed an exclusive licensing agreement with a distribution partner in the mining industry.  Abandoned Mine Cleanup LLC has agreed to pay an upfront licensing fee of $5 million for exclusive access to the Ozonix system for mining market in North and South America.  Ecosphere will also earn royalties on future sales and the licensee has guaranteed a minimum of two sales.

The company is late in filing its financial report for the year ending December 2015, notifying the SEC at the end of March 2016 that a discrepancy with its auditors related to “certain payment issues” has delayed the completion of the annual audit.   In the late notice, the company provided preliminary financial results with sales totaling $736,874 and an operating loss of $4.9 million.  In light of the protracted downturn in the oil and gas industry, which has been Ecosphere’s primary addressable market, its auditors have recommended a write-off of $11.9 million in intangible assets.  That will bring the net loss for the year 2015 to an estimated $22.6 million.  The late notice filing provided no balance sheet or cash flow details.  At the end of September 2015, the company held $4,822 in cash on its balance sheet and had a negative working capital profile.

With the troubled financial profile it should be no surprise that the Company trades at nickel per share.  The recent licensing agreement appears to be coming at a critical point for Ecosphere.  The share price thus represents an option on this payment and the ability of management to use the cash flow as a springboard to market penetration.

Industry is not the only place to find foul water.  Excess nutrients in water runoff from fields have led to algal blooms deadly to fish and livestock waste has contaminated downstream water sources.   Bion Environmental (BNET:  OTC) has patented a biological process that facilitates the growth of naturally-occurring bacteria that converts most the nitrogen in waste streams to harmless inert gas.  The rest of the nitrogen and phosphorus is converted to a cellulosic biomass that is later recovered from the water stream.  When put to work, Bion’s process removes up to 95% of the excess nutrients from agricultural waste streams and reduces 90% or more of greenhouse gas emissions.   The clean water can be reused at the farm for animals or crops or allowed to return to ground water reservoirs.  The cellulosic solids can be repurposed for energy production.  The company has also patented technology to recover nitrogen-rich fertilizer from livestock waste streams.

Under provisions of the Clean Water Act of 1972, the U.S. Environmental Protection Agency is responsible for regulating animal waste.     The 1998 Clean Water Action Plan identified a strategy for addressing pollution from animal feeding operations.  Dairies in particular are prone to releasing untreated wastewater into neighboring environments since they use large amounts of water to remove manure from milking barns and corrals.  Stricter regulatory action is likely needed to get livestock owners the incentive to invest in water clean-up technology.

As promising as the story sounds, Bion has had trouble penetrating the U.S. agricultural market.  Sales have yet to reach even the $100,000 hurdle.  Management appears to be moving forward with a bare bones budget, using $1.0 million in cash to support operations in the twelve months ending December 2015.  The company only had $185,560 in the bank at that time, suggesting a critical need to find paying customers.  At $0.84 per share, the stock appears to be a rather expensive play on management’s ability to get livestock owners to adopt its system.

If these two companies leave you wheezing and coughing, France’s water industry giant Veolia Environment P.A. (VIE:  PA or VEOEY:  OTC) may provide an ‘emergency inhaler.’  Water treatment and clean-up solutions are only parts of a wide menu of environmental products and services offered by the Veolia.  A recent contract win from Petrofac, a British oil and gas producer, is typical of Veolia’s water clean-up business.  Veolia will provide treatment systems for wastewater generated at the Rabab Harweel oil and gas project in the Sultanate of Oman.  Veolia is already familiar with Oman, having completed the expansion of the Sur desalination plant near Muscat, Oman.

Veolia reported $25 billion in sales in the fiscal year ending December 2015, providing $450 million in net income or $0.69 per share.  Operations generated $2.4 billion in operating cash flow.  The company ended the year 2015 with $4.6 billion in cash on the balance sheet.  Even at the very low interest rates now offered by banks, Veolia’s cash balances would produce enough interest income to provide working capital for both Ecosphere and Bion.   Veolia might be conserving its cash for to support its debt burden.  Veolia carries enough debt to propel its debt-to-equity ratio to 130.0.

To get a taste of Veolia investors must pony up a price 30.4 times trailing earnings, suggesting that a position in a large, well established operation comes with a price.  One plus is that the shares come with a 3.4% current dividend yield.  Another plus is low volatility.  Shares quoted on the U.S. Over the Counter listing have a beta of 0.90.

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.

April 18, 2016

Water Gleaner Stocks: Value In Sludge

by Debra Fiakas CFA

There are well over 3,000 companies around the world that are involved in some element of wastewater treatment, providing a broad mix of technology, equipment or engineering services to generators and collectors of fouled water.  A small group in this wide field is gaining visibility  -  the ‘water gleaners.’  Like the peasant women picking up stray grains of wheat left behind in the empty field of Millets famous painting, some see value in effluents, sewage and run-off.  In this post we look at three small-companies with novel technologies to harvest water.

New Sky Energy is a private company based in Boulder, Colorado, has developed several waste recycling processes, including carbon dioxide capture, sour natural gas sweetening.  The company’s ‘SaltCycle’ process converts industrial and agricultural brines into useful chemicals that have economic value.  It is an appealing alternative to having to pay for disposal.

The SaltCycle process involves two steps.  In the first step brines are concentrated and purified to produce useful salts such as sodium chloride or sodium sulfate.  Then in step two, the salts are put into a chemical or electrochemical reactor to produce acid, base and sulfate.  Soda ash or bicarbonate can be produced from the base.  Sales of the end products can be used to pay for upstream water treatment or as a power source for the SaltCycle reactor.

 New Sky has focused on the water waste streams of the oil and gas industry.  However, the company has also been calling on mining companies, landfill operations, agriculture, and other manufacturers.  One element that helps the New Sky pitch is the scalability of its systems and the availability of engineering services to help optimize operations. Patents protect the technology behind its three primary waste converting systems.

With all that going for New Sky Energy, there is little for investors.  Management holds its cards fairly close to the corporate vest, making only a few customer announcements and saying little about partners or investors.  Still New Sky Energy is an interesting company to watch for future developments in this expanding market for sustainable industrial processes.

MagneGas Corporaton (MNGA:  Nasdaq) has been a topic of past articles.  The November 2015 post outlined how the company is using its plasma arc technology to gasify carbon-rich liquids such as municipal wastewater to produce hydrogen gas.  The company markets the gas for industrial applications such as metal cutting.  It widely seen as a replacement for acetylene and has been adopted by fire departments emergency situations requiring safer metal cutting tools.  MagneGas2 is being used by two subcontractors in the expansion of the Vehicle Assembly Building at NASA’s Kennedy Space Center.    Most recently the company received an order from a major gas company in Mexico for industrial metal cutting.

As a public company MagneGas provides investors a pure play on wastewater reclamation and reuse.  Unfortunately, ‘industrial sustainability’ is also a ‘small play.’  In the twelve months ending December 2015, the company reported $2.3 million in total sales, resulting in a net loss of $8.8 million.  MagneGas is also still using cash resources to support operations  -  $5.6 million in that same twelve-month period.  With only $2.2 million in cash remaining in the bank at the end of December 2015, a ramp in sales cannot come fast enough for MagneGas.

OriginClear (OOIL:  OTC) was the focus of an October 2015 post.  The company has developed an ‘electro water separation’ process that uses electricity to collect oil and suspended solids in waste water.  The solids are removed with ‘advanced oxidation’ to return clean, decontaminated water back to the industrial system.  OriginClear markets its system has application in settings where oil contaminates water such as in hydraulic fracturing of oil and gas wells.  However, it also has application in the production of algae for fish feed.  Both industries are large water users and benefit from being able to recycle and reuse water rather than having to pay for both water replenishment and wastewater disposal.

Through the acquisition of Progressive Water Treatment based in Dallas, Texas, OriginClear took its first step in the reclamation of foul water.  Progressive brought with it a portfolio of water treatment systems for municipal and industrial waters using reverse osmosis technologies.  More recently the company launched a joint venture with a Malaysian engineering firm, Osmocell Malaysia, which has successfully deployed twenty filtration and reverse osmosis systems for water purification.  The joint venture claims over $1.0 million in proposals and bids in its business pipeline.  Malaysia is the world center for rubber glove manufacturing, which uses water-intensive processes that leave organics and ammonia in process water. 

OriginClear has yet to record significant revenue and still requires cash resources to support operations.  Consequently, its stock is priced in the pennies as an option on management’s ability to conserve cash resources long enough to get the revenue pump primed and generating higher numbers at the top-line.  Cash totaled $695,295 at the end of December 2015.  With a cash usage rate near $250,000 per month, there is some concern about how long OriginClear can last without a dramatic increase in revenue.  That said, the company did have $1.0 million in contracts receivable on the balance sheet, so collections could save the day.  Furthermore, the Progressive Water Treatment operation acquired in October 2015, is expect to add $6.5 million to the top-line in 2016.  

Management of OriginClear is also actively in the hunt for additional acquisition and joint venture partners.  While we expect that large group of over 3,000 companies to consolidate, it is tough to see OriginClear, with it barebones balance sheet, as a consolidator.

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.

April 17, 2016

A Buying Opportunity for Alternative Energy Mutual Funds and ETFs?

By Harris Roen

Alternative Energy Mutual Funds Trade Down for the Year

Alternative energy mutual funds have taken a hit, down 6.5% on average over the past 12 months. Just three of the 15 mutual funds we track are up for the year. The largest gainer, Brown Advisory Sustainable Growth Inv (BIAWX), is only up an anemic 6.2%.

Much of the difficulty is due to a drop in solar stocks over the past 12 months. For example, if you look at the top weighted holdings of Guinness Atkinson Alternative Energy (GAAEX), nine out of 15 are solar stocks. All of those solar stocks are down for the year, off an average of 22%.

  mf returns

ETFs are Widely Lower

Alternative energy ETFs have suffered what can only be called stunning declines in the past 12 months. Of the 22 ETFs that we track (that have been trading more than a year), 19 are trending down. Two of the bottom three performers are solar ETFs. Alternative energy ETFs have fared better in the past quarter, with slightly more than half of ETFs trading in positive territory…

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 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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