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The 10-minute guide to Dupont and advanced biofuels

Wed, 23 May 2012 18:53:32 -0500

Jim Lane

The Wilmington Express

Dupont (DD) is accelerating, after acquiring Danisco in a $6B 2011 takeover.

Next stop – expansion in cellulosic biofuels and biobutanol.

They’re bullish on biofuels and getting more so as their technology and vertically integrated strategy comes together.

More than a year ago now, Dupont took a giant additional leap into industrial biotechnology with the acquisition of Danisco and its star subsidiary, Genencor.

Immediately on the bioenergy front, the Dupont Danisco joint venture in cellulosic ethanol, memorably named Dupont Danisco Cellulosic Ethanol, dropped the “Danisco” in its moniker.

But despite its position as one of the world’s leading purveyors of paint, Dupont’s ambitions run a lot deeper than making surface-level changes. One aspect that new division chief Jim Collins is bringing to Dupont’s adventures in cellulosic biofuels is in communicating the company’s optimism, focus and purpose regarding the sector.

You see, the company has traveled far in its journey, from the days when DDCE and others were struggling to put the image of “commercialization is five years away…forever,” behind them.

Emphatically, that’s now done, and the company’s metrics in cellulosic biofuels are starting to look compelling. Not only is commercialization a lot less than five years away – a massive breakout in capacity building looks feasible within that time frame as well.

Let’s take a closer look.

First commercial project.

The company expects to have its 25 million gallon first commercial facility operating within 18 months. It’s writing the check on this one – based up in Nevada, Iowa, adjacent to the first-gen Lincolnway corn ethanol plant.

Following launch.

The company’s corn stover demonstration will shut down and come back up in Tennessee with a demonstration of switchgrass.

System.

Dupont is touting an integrated approach – software and hardware combined, if you will – from seed through to understanding the harvesting of biomass, enzymes and the processing technology.

The rationale.

Jim Collins says, “If you want to build 100 of these, you have got to have the lowest-cost system.” In Dupont’s case, its a $7 per installed gallon cost, or a $200 million capital investment to build a 28 million gallon plant.

The corn stover projections.

Nice to own Pioneer Hi-Bred in this case – you can imagine the detailed knowledge the company has assembled on what is planted where, in Iowa and elsewhere – the yields that can be expected, and the resulting assets in corn stover.

The model moving forward.

It will be based on licensing, although Dupont suggested that the first two or three plants will probably take the form of JVs as the technology is proved out.

Geographies and feedstocks.

Dupont is emphasizing the availability of stover in Iowa, Illinois and Indiana, driving the decision to deploy based on corn availability first. For Tennessee, North Carolina and Georgia, as a second cluster, an emphasis on switchgrass, which is being developed in partnership with Genera Energy. So, for now, its a two-hun strategy.

International prospects.

Dupont is rethinking Brazil, which it had put in a backseat while focusing on switchgrass and stover. In this case, the company has been watching the Brazilians go through a wrenching consolidation in the sugarcane industry, and a pivot from the burning of waste in the field to a mechanical harvest which will bring the tops and leaves into the plant in order to get them off the field. “It’ll be piling up,” Collins noted of the tops and leaves, “and with bagasse, they are already getting more than they can efficiently burn for power.” Bottom line, Dupont has “renewed interest” in Brazil.
Partners.

“Partnership is in our DNA” former CEO Chad Holliday used to say, and the company has been building on partnerships with Tate & Lyle, Goodyear for bioisoprene, BP for the Butamax biobutanol technology as well as wheat ethanol in the UK, and recently with Fagen as it works through opportunities with biobutanol conversion. Expect that roster to stay strong.

Biobutanol.

Speaking of biobutanol, Dupont noted that it has Highwater Energy in its early adopters group, already, and has added Corn LP. Colins sees isobutanol conversions, from corn ethanol production, as being more attractive to the larger, more modern facilities, ;ess with the smaller, older, more marginal facilities.

Tax and mandate policy.

Dupont is, traditionally, welcoming of cellulosic tax credits, particularly because the production tax credit rewards actual production, and is a “winners only” system. But, Collins noted, those programs “have to stimulate a sector, then quickly go away.” With the Renewable Fuel Standard, the company emphasizes that it is not looking for any handouts, no new help, but stability with the RFS will be invaluable in helping the company to move from first commercial to breakout expansion.

The Bottom line

100 plants? Now, that’s talking real business. The $7 per gallon capex is a compelling figure – to date, the USDA has been looking at $8 per gallon, and a number of companies have been deploying at numbers well north of that. With 21 billion gallons of capacity scheduled to be built, that’s not an inconsequential amount of money.

Expectations? For now, a lot of add-on facilities in the heartland of corn ethanol, the Midwest. How many plants are in the Iowa, Illinois, Indiana, South Dakota and Nebraska base? According to the RFA, 143 plants – say, around 100 of them candidates for cellulosic add-ons in terms of project size and modernity. POET is of the belief that you can add around 25 million gallons of cellulosic capacity per existing 100 million gallon corn ethanol plant.

So, let’s figure that there is 2.5 billion gallons of capacity, right there, in cellulosic biofuels. Add in around 6 billion in potential capacity for biobutanol. That’s an awful lot of work for the folks for Wilmington.
Perhaps one of the reasons why analyst Mike Ritzenthaler, at Piper Jaffray, wrote in a recent note to clients: “Maintain Overweight rating and $62 price target… We are incrementally more confident in our above-guidance FY12 estimate of $4.45, versus consensus of $4.30. Companies exposed to the strong ag cycle seem to be somewhat out of favor in the current market environment – amid fears that fundamentals cannot get any better than in FY12 – but we believe this is unwarranted. With such robust performance delivered in 1Q and expected through the end of 2012, as well as the portfolio of new products scheduled to roll out over the next two years on the seed and crop protection platforms, we see solid potential to outperform expectations over the next several years.”

Disclosure: None.

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.

Tariffs on Chinese Solar Are Bad for Us All

Wed, 23 May 2012 09:22:26 -0500

Garvin Jabusch

Trade War photo via Bigstock

The United States Department of Commerce Thursday, and of all things at the behest of a German-owned company, SolarWorld AG (SRWRF.PK), imposed extreme tariffs on China-made solar panels and modules of between 31% and 250%, making them much less affordable for U.S. consumers. Commerce took the additional extraordinary step of making the tariffs retroactive for 90 days to prevent U.S businesses and homeowners from getting a decent price on the basis that their local dealer/installer bought panels before the date of their decision. Solar in this country just got a lot more expensive and the 100,000 domestic solar industry jobs (mostly installing and servicing) created over the last five years are now at risk. Also, oil, coal and gas suddenly can remain price competitive with solar in the U.S. for far longer than market forces would otherwise dictate. Longer term, it could make the U.S. may the last dirty, expensive, fossil-fuels based economic backwater economy in the developed world. Jesse Pichel, Managing Director and Senior Equity Research Analyst covering Clean Technology companies at Jefferies has clearly summarized the situation:

Environmentalists and the unemployed should be equally disappointed with this decision because lower cost solar panels make solar more competitive with dirty fossil fuels. It should be clear by now that there are more U.S. jobs on the installation side of the solar business than on manufacturing. These cases have a chilling effect on business and it will linger for a long time. It’s unfortunate that SolarWorld has taken this scorched Earth approach and that they are distracting from the growth of U.S. jobs and affordable solar energy.

Slowing down solar development is undesirable in general. Remember, solar at scale represents almost limitless power at a zero cost of fuel, meaning it has the power to emancipate us from hundreds of billions spent every year of fossil fuels. I find it sad and funny that we think a few billion in tax cuts will stimulate the economy and lubricate the recovery, but we fail to see that limitless, nearly free energy would have that same effect, but at many times the scale and all while creating hundreds of thousands of new, quality jobs. So it’s not surprising that many American solar companies oppose the decision. As reported in the New York Times:

“Many solar panel installers in the United States have opposed tariffs on Chinese panels, contending that inexpensive imports have helped spur many homeowners and businesses to put solar panels on their rooftops. Opponents of the tariffs say that the United States benefits from cheap Chinese production. They point out that Chinese companies often turn to American companies to buy the factory equipment and polysilicon they need to make solar panels, and installers hire local American workers to set up and service rooftop systems.”

Let us not forget that the U.S. exports raw polysilicon to China, and that business will now be at retaliatory risk as “the Chinese industry would file a trade case at the Chinese commerce ministry against American exports of polysilicon.” The ‘American made factory equipment’ and ‘local American workers’ also stand to suffer.

In addition, tariffs by definition are inflationary. A customer who now has to pay significantly more for his or her preferred brand of panel is experiencing inflation, but so too is the customer buying the American made panel that now is free to cost far more than it did yesterday due to the absence of tough competition. With panels of all kinds going up in price, so does the cost of electricity they produce, meaning the portion of the grid they supply will get more expensive, making the blended grid electricity rates go up, in turn driving up the costs of every home and business that use electricity. Inflation all around, then.

The problem isn’t, as claimed by Commerce, that China has been dumping unfairly priced solar panels on the U.S., it’s that our domestic solar industry as a whole has not remained competitive in the face of fierce global competition. China’s panels are competitive because "[t]hey've figured out that clean-energy manufacturing will be an area of major growth and are investing vastly more than we are to support it." In the U.S., we’ve invested a fraction as much as China into solar and other clean energy sources, so naturally, we’re behind them on the cost curve. Commerce’s decision will do little to slow the growth and technological progress of solar globally; it will just mean the U.S. won’t be competing in this key piece of powering the future economies.

There are of course American firms, such as New Hampshire based GT Advanced Technologies (GTAT), who have managed to compete very well with Chinese solar without Commerce’s protectionism. Tom Gutierrez, CEO of GT Advanced Technologies, recently had this to say on the opinion page of the Boston Globe:

I look at the time and energy invested in this investigation and wonder: Why, and what for? This is counterproductive to the primary objective of the US solar industry: Getting solar to grid parity. Tariffs, charges of dumping, possible trade tensions — these only enable high-cost manufacturing to continue, resulting in higher solar costs for US consumers. In the end, such moves negatively impact the growth of high-quality solar jobs in the United States.

Instead of carrying water for foreign-owned businesses, we should reward the traits that ensure success in the global marketplace: Business adaptability and commitment to innovation. To win in this race, it’s really about hard work and figuring out how to survive and thrive against highly-motivated competition. We need to be fostering real innovation — not rewarding inefficient businesses that seek government handouts. GT and many other US-based companies have proven that we can compete against fierce Asian competitors and win. We just have to run better businesses.

Right. Or as I said in a previous post back in January 2011, “we should try competing instead of complaining.” And Gutierrez makes another interesting point, if these tariffs are disliked by many of the U.S. companies they’re meant to protect, who are they really for? What’s their real purpose? It’s difficult not to notice, as Susan Wise, spokeswoman for SunRun, told Forbes, that “[i]f finalized, this decision would move us backward in the effort to make solar affordable for Americans,”. “It would make prices higher at the exact moment when solar power is starting to become competitive with fossil fuels in more markets.” [Italics mine.]

Germany’s SolarWorld AG, which brought the case to the Commerce Department, does not have the best record of defending its own industry. In Germany, they have long lobbied to lower solar feed-in tariffs, meaning, effectively, they’ve been trying to stop receiving free money. What sane business does that? I’m sure SolarWorld’s shareholders are stymied by the company’s anti-profit attitude. Both efforts, to reduce subsidies in Germany and to start a solar trade war between China and the U.S., point to a company that does not have its industry’s best interests in mind. It may be worth remembering that a large part of SolarWorld AG used to be Shell Oil’s “crystalline silicon” division. Shares of SolarWorld AG are up “as much as 18 percent” the morning after the tariff announcement, but U.S. based manufacturer First Solar (FSLR) has been off by as much as 5.8 percent this morning.

In Saudi Arabia, they must be laughing. Commerce’s handout, to let U.S. solar manufacturers run inefficient operations that produce solar modules too expensive for many domestic consumers, ensures we’ll be dependent on Saudi oil and other fossil fuels for a long time to come. Meanwhile, the Saudis are installing $109 billion worth of solar capacity to power their own domestic economy. They want to stop powering their own country with oil so they can sell every drop they can find and pump to us, which should be easy if we have a lot less solar to displace their costly crude. Too bad we just ceded the advantage in getting Saudi’s solar business to Chinese firms.

Commerce is expected to issue its final order making Chinese solar tariffs permanent in July or August. Let’s hope by then that they can be persuaded to allow free markets to reign.

Disclosure: Green Alpha is long GTAT, but has no positions in other companies mentioned

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."

Stop-Start Realities and EV Fantasies

Tue, 22 May 2012 04:36:07 -0500

John Petersen

Last week Johnson Controls (JCI) released the results of a nationwide survey that found that 97 percent of Americans are ready for micro-hybrids with stop-start idle elimination, the most sensible automotive innovation in years. A micro-hybrid turns the engine off to save fuel and eliminate exhaust emissions when it's stopped in traffic and automatically restarts the engine when necessary. While the overwhelmingly positive consumer response didn't surprise me, JCI's short-term growth forecast for micro-hybrids did.

I've been writing about the rapidly evolving micro-hybrid space since 2008 and during that time the market penetration forecasts have built quietly like a tsunami in the open ocean.

In October 2008, Frost & Sullivan predicted that global micro-hybrid sales would ramp to 8 million vehicles a year by 2015 while EVs would remain an inconsequential niche.
In April 2010, the EPA and NHTSA predicted that stop-start systems would be standard equipment on 39% of new cars sold in the U.S. by 2016 while EVs would remain an inconsequential niche.
In June 2011, JCI predicted that up to 22 million vehicles a year would be sold with stop-start systems by 2015 while EVs would remain an inconsequential niche.
In February of this year, Lux Research forecast micro-hybrid sales of 25 million vehicles a year by 2015 and 39 million vehicles a year by 2017 while EVs would remain an inconsequential niche.
Last week JCI upped the ante once again with a new forecast that 35 million vehicles a year will be equipped with stop-start systems by 2015.

The most fascinating aspect of the JCI forecast is that it's not based on some fuzzy results oriented analysis of what consumers might want. Instead, it's based on planning discussions with automakers that are firming supply chains for their 2015 models. The contracts won't be signed for a couple years, but the decisions have already been made. Stop-start is following the same path as power steering, catalytic converters, anti-lock brakes and air bags. It will be standard equipment within a couple years and the most unexpected technology development in a decade.

A basic stop-start system will add about $300 to the price of a car and save its owner 5% on his fuel consumption. For 35 million vehicles worldwide, the incremental cost will be about $10 billion and the annual fuel savings will be 700 million gallons. To put those numbers into perspective, my favorite toymaker Tesla Motors (TSLA) hopes to ramp its production to 20,000 EVs a year if it can find that many mathematically challenged buyers. The electric drive systems in those EVs will cost at least $800 million, but they'll only save eight million gallons of gas per year.

When you turn the crank on the fuel efficiency numbers, it costs $14 to save a gallon of gas per year with stop-start while it costs $100 to save the same gallon of gas with electric drive. I'm sure the eco-royalty won't mind a paying a 600% premium for flashy fuel savings as long as smarmy politicians are willing to squander public funds on direct and indirect subsidies and give them special perks like HOV lane access. When you look past the hype, however, it’s clear that real companies that deliver real, sensible and affordable value to the mass market will generate the business earnings.

Two publicly held battery manufacturers, JCI and Exide Technologies (XIDE), will be the first to benefit from the rapid global implementation of stop-start technology. They'll each see their per vehicle revenue double while their per vehicle margin triples. In JCI's case, the incremental revenue and margin from stop-start batteries will just make a good company better. In Exide's case, the incremental revenue and margin should turn a long string of losses and disappointments into a healthy stream of future profits.

At Friday's close, JCI was trading at 48% of sales and a 200% premium to its March 2009 lows. In contrast, Exide was trading at 6% of sales and within pennies of its March 2009 lows. There's no doubt that rapid implementation of stop-start technology will lift both boats. Given the big differences between their relative valuations, the percentage impact on Exide's stock price should be several times greater than the percentage impact on JCI's stock price.

While JCI and Exide will be early leaders in the stop-start battery space, there is a persuasive and growing body of proof that conventional lead-acid batteries, including the "enhanced flooded" and AGM batteries both companies are touting as stop-start solutions, aren't durable or robust enough to succeed in the long term.

The basic problem is that a car equipped with a stop-start system needs a battery that can carry the accessory and starter loads when the engine turns itself off in traffic, and then recharge quickly in preparation for the next engine off event. In city driving conditions, conventional lead-acid batteries can't charge fast enough and a few months rapid cycling leads to an unavoidable decline in battery performance that quickly renders the mechanical components inoperable.

The following graph from Axion Power International (AXPW.OB) highlights the dynamic acceptance issue by comparing the performance a high quality AGM battery with the performance of its serially patented PbC® battery, a third generation device that replaces the lead-based negative electrodes in a conventional AGM battery with carbon electrode assemblies.

In both graphs, the grey line represents dynamic charge acceptance measured in amps. While dynamic charge acceptance of the AGM battery plummets from 50 amps to 5 amps within a couple months, the PbC can accept charging currents of 100 amps for five years before its performance begins to degrade. The black lines represent the time needed for the battery to recover from an engine off event. While both batteries start out with a charge recovery time in the 30 second range, the recovery time for the AGM battery increases to about 4 minutes after six months while the PbC stays in the 30 to 50 second range through eight years of use. Additional advanced energy storage solutions that are targeted at the particular performance requirements of stop-start vehicles include a lithium-ion starter battery from A123 Systems (AONE) and a hybrid system that pairs an AGM battery with a supercapacitor module from Maxwell Technologies (MXWL).

The stock market doesn't understand that several billion dollars of incremental revenue from stop-start batteries is already baked into the cake for 2015. It doesn't understand that two established battery manufacturers are the only companies that have enough manufacturing capacity to respond to the demand. It doesn't understand that a handful of advanced technology developers will be nipping at the big boy's heels with energy storage systems that are better suited to the needs of stop-start systems, or that each one percent of market penetration can represent $100 million of incremental revenue.

The die is already cast. The market for high performance stop-start batteries is going to be a free-for-all where unlimited demand chases limited supply from a small number of established manufacturers and emerging energy storage technology developers. Every company that brings a cost-effective energy storage solution to the stop-start market over the next three years will have more customer demand than it can possibly satisfy. Patient investors who position themselves in front of this rapidly developing tidal wave of demand for high-margin energy storage systems are in for a fun ride.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and owns a substantial long position in its common stock.

New Flyer Sees Bus Market Revival

Mon, 21 May 2012 16:14:55 -0500

Tom Konrad CFA

Highlights from New Flyer Industries’ (TSX:NFI, OTC:NFYEF) first quarter conference call

The Numbers

New Flyer announced first quarter results on May 9. The results were:

	Q1 2012	Q1 2011
Earnings up; reverses loss	$2.7 million profit	$6.4 million loss
Revenue up 6.2%	$227.6 million	$214.3 million

The improved numbers mostly arise from a more favorable product mix, and the benefits of New Flyer’s restructuring, which removed most of the debt burden. The North American transit bus market remains very competitive, and this competition led to ~~Chrysler’s~~ Daimler‘s Orion bus division to wind up operations in the quarter.

Management held the analyst conference call on Friday. Here are the highlights:

Bus Market Revival

Orion exited the market just in time for a revival. Transit agencies are once again issuing inviting bids for new buses, after a two year drought. State tax collections are rising, and transit agencies are contending with aging fleets and increasing ridership, driven by increasing oil prices. Overall demand for new buses is at “an all-time high.”

Management does not believe that Orion’s exit and the larger bid universe will be enough to allow the remaining manufacturers to increase prices this year, as all manufacturers compete to refill backlogs and manufacturing slots, but they do anticipate prices will stabilize.

New Midi Bus

New Flyer has been working for the last year to diversify its product offerings. The first announcement of this type came last week, when they announced a partnership with British firm Alexander Dennis to jointly develop a new smaller size “midi” bus for the North American market. Alexander Dennis has deep experience in the international midi bus market, having manufactured 16,000 buses in the class. New Flyer will be contributing its expertise with North American standards. New Flyer will manufacture the midi buses at its existing plants and sell them to existing and potential new customers. This new opportunity will come very cheaply for New Flyer, and cost $10 million or less to build prototype buses and retool an assembly line.

Management continues to look at other diversification opportunities, but can’t say if there will be any more announcements this year.

Conversion of Outstanding Notes

Management reiterated their intent to redeem the outstanding notes left over from the conversion of their old IDS securities in August. The remaining IDS securities trade in Toronto as NFI-UN and over the counter as NFYIF. After the conversion, management reiterated their long-stated intention to reduce the dividend to about C$0.04875 monthly or C$0.585 on an annual basis. At the recent stock price of C$7.14, this amounts to an 8.2% annual dividend yield, beginning with the dividend declared in August and paid in September.

Conclusion

Overall, the future is looking very bright for New Flyer. Their current backlog should allow them to maintain production at the current level for the rest of the year, and strong demand and new offerings mean they may be able to increase production and prices in 2013. Combine that with a dividend yield which will be over 8% even after it is reduced, and New Flyer remains a stock to buy and hold for the long term.

Disclosure: Long NFI

This article first appeared on the author's Forbes.com Green Stocks blog.

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.

PFB Corp Integrates Upstream, Just in Time for Green Housing Market Upturn

Sun, 20 May 2012 16:09:11 -0500

Tom Konrad CFA

On May 9, green building firm PFB Corporation (TSX:PFB, OTC:PFBOF) announced that it had signed a letter of intent with NOVA Chemicals for PFB to acquire NOVA’s Performance Styrenics business. The all share deal will give NOVA an equity stake in PFB as well as two seats on PFB’s board.

PFB’s Plasti-Fab subsidiary currently sells Expanded Polystyrene products (EPS) such as Insulated Concrete Forms and Structural Insulated Panels into the North American green building market, and as a result is a customer for the Performance Styrenics division’s EPS resins. Over the last few years, volatile materials costs have been a large source of uncertainly in PFB’s earnings, so the acquisition should lead to more predictable earnings at the company.

While the size of the equity stake has not been announced, I expect it will be significant given that two board seats come along with the stake. This boost in size should be beneficial to PFB’s shareholders given the company’s current small market cap ($38 million) and low liquidity (only $4000 worth of shares trade hands on a typical day.) The added size and revenues will allow PFB to better afford the costs of a market listing, and may enable a move to a more liquid market such as AMEX, or a wider class of investors to invest in the stock.

Although the low liquidity makes it difficult for investors to buy PFB’s stock quickly, a patient investor can acquire it at a very attractive price. PFB typically trades between $5.50 and $6.50. At $6 a share, PFB pays a 4% dividend, and has a trailing twelve month price earnings ratio of 11. Book value per share was $6.72 at the end of 2011.

PFB is beginning to see its green building markets revive: First quarter earnings per share were up 6 cents over a year ago, and sales were up 6.5%. Other green building companies are expecting a market revival in 2012, as I wrote here about geothermal heat pump companies Waterfurnace Renewable Energy (TSX:WFI,OTC:WFIFF) and LSB Industries (NYSE:LXU).

With a great valuation and reviving market, now seems a great time to buy PFB stock. Just use good-til-cancelled limit orders to avoid driving the price of this thinly traded stock up to more than you’re willing to pay for it.

Disclosure: Long PFB, WFI, LXU

This article first appeared on the author's Forbes.com Green Stocks blog.

Ameresco (AMRC) Misses by 7 cents: Look to Buy on Any Sell-off

Sat, 19 May 2012 13:09:28 -0500

Tom Konrad CFA

Ameresco, Inc. (NYSE:AMRC) reported first quarter (Q1) earnings this morning, missing analysts’ earnings expectations by two-thirds. While Q1 earnings were only 3 cents compared to the 10 cents expected by analysts, the company slightly beat revenue expectations by $600,000 for overall Q1 revenues of $146.6 million.

While the headline was disappointing, President and CEO George Sakellaris confidently reaffirmed revenue guidence for the rest of the year, saying that he expected 2012 revenues to be heavily back loaded. Sakellaris predicts the second half to account for 60-62% of 2012 revenues, compared to 38%- 40% for the first half of the 2012.

Longer term, he expects Ameresco to continue its strong growth, with operating margin strengthening towards 20% over the longer term.

Strong revenue growth is coming from contract with the federal government. While Ameresco received only $2 million worth of awards in the whole of 2011, they have already been awarded $20 worth of contracts in 2012. Sakellaris commented that Ameresco has found it hard keeping up with federal demand so far this year.

These new contracts (up 50% over Q1 2011) helped grow Ameresco’s backlog by 10% compared to last year. While such new contracts will not begin producing revenue until 2013 at the earliest, they should give investors confidence that Ameresco’s long term growth potential is still in place. Ameresco’s revenues should continue to grow 20% year over year, despite the poor earnings performance this quarter.

Conclusion

This mornings’ earnings miss may cause a sell-off over the next day or two. Investors should take the opportunity to add to their positions in this sustainable company which has low exposure to expiring renewable energy subsidies.

Note: This article was first published on the author's Forbes.com blog on May 8th, when Ameresco was trading at $11.70. Click here for an up-to-date quote.

Disclosure: Long AMRC.

This article first appeared on the author's Forbes.com Green Stocks blog.

EVs are a Struggle for A123, but Aptera is Back and They Thrive in Hawaii-The Week In Cleantech: 5/18/2012

Fri, 18 May 2012 15:08:22 -0500

Jeff Siegel and Tom Konrad CFA

May 14: New Flyer (TSX:NFI, OTC:NFYEF) Sees Bus Market Revival

North America's largest supplier of heavy-duty transit buses sees overall demand at an "all-time high." More here.

May 15: Electric Car Battery Company Struggles

JS:

A123 Systems (NASDAQ:AONE) has announced Q1, 2012 results. . .

Revenue fell 40% from $18.1 million in Q1, 2011 to $10.9 million. Net loss came in at $90.8 million, compared to a net loss of $53.6 million last year, and as of March 31, the company has $113.1 million in cash and cash equivalents.

I don't know a single person who was expecting to see anything positive coming from Q1. This stock, despite a lot of early optimism, has been getting crushed since early 2010. Sure, traders have been having a field day with this one. But those who initially thought AONE was a good long-term play left the building last year.

To be honest, it's unfortunate AONE has had such a rough go at it. Certainly I applaud any group of individuals with the stones to launch an energy storage company on US soil.

Besides intense competition from already established companies working in this sector, like Johnson Controls (NYSE:JCI) and EnerSys (NYSE:ENS), developing disruptive technology in this space is a costly, and extremely risky proposition. And of course, any young company looking to help develop next-generation electric vehicles is just asking for an avalanche of criticism from naysayers, partisan slaves and crotchety old bastards who still haven't figured out that supporting electric car development is actually a patriotic endeavor. I definitely expect those dolts to pump out a few op-ed pieces this week highlighting the $249 million grant AONE got from the government.

Regardless, when it comes to making wise investment decisions, none of this matters. You know the deal – never get emotional. And while I would love nothing more than to see AONE succeed, in this market environment, I have to continue watching this one from the sidelines. Although it will be interesting to see how it does throughout the day. The stock headed north at the open, climbing around 6 percent in the first 10 minutes of trading.

JS:

A vehicle with a 200 MPGe has just been saved from the scrapheap.

Aptera Motors has been through a lot in trying to get its ultra-sleek Aptera 2e off the ground, including, but not limited to completely running out of money and being denied a $150 million loan from the Energy Department.

Earlier this year, management announced that Aptera was shutting down its operations. However, thanks to a new Chinese-American partnership, Aptera may be back in business.

A few weeks ago it was announced that a Chinese investor purchased all of Aptera's assets, and is now looking to get the 2e on the market as early as next year.

Now known as Aptera USA, which is made up of several American minority investors and Chinese auto and motorcycle giant Jonway Group, the company is plotting a pan-Pacific assembly line for the 2e. The plan is to have the composite body of the 2e built at the Jonway facility in China and then shipped to Santa Rosa, California where Remy electric motors and batteries will be installed.

This type of pan-Pacific assembly isn’t unique. Coda Automotive has a similar method.

Rick Deringer, a real estate developer who helped broker the Aptera deal, says that pricing of the 2e has yet to be determined but that 25,000 could be manufactured next year with zero government assistance.

When Aptera USA bought the assets of Aptera Motors, it also purchased designs for prototypes and a list of 58,000 potential customers, including the 5,000 who had placed deposits on the 2e before Aptera Motors went out of business.

And here’s the kicker: Deringer also explained that one of the prototypes bought from Aptera Motors included plans for a four-door battery-powered car with the capability of getting just under 200 MPGe. In addition, Deringer said plans are in motion for developing a hybrid version of the 2e, an electric truck and solar-powered charging stations.

May 16: Investors Overreact to Explosion at LSB Industries (LXU) chemical plant

TK: Early Tuesday morning, an explosion at LSB Industries‘ (NYSE:LXU) El Dorado, Arkansas chemical facility damaged the facility.

The explosion was in the DSN concentrated nitric acid plant, and damaged both the plant and surrounding equipment. No employees or anyone in the community was injured, and management believes that there was no environmental release. The entire El Dorado facility was shut down pending an assessment and repair of the damage, but management was not able to provide any timeline.

The stock sold off on the news, at one point down over $6, and closing down $2.36 at 30.01. The stock is back up to $31.10in after hours trading, after a management conference call to discuss the incident. Management tried to put the damage in perspective during the call.

Key points were:

The facility was insured for both damages (with a $1 million deductible) and business interruption after a 30 day waiting period.
The El Dorado facility accounted for 29% of operating profits from LSB’s chemical division in Q1, although this was expected to be lower in Q2 as the company’s Pryor plant was offline for much of Q1. The chemical division accounts for about 2/3 of the company’s sales.
The El Dorado facility has lower margins that the company’s other facilities, which are currently benefiting from low natural gas feedstock prices (El Dorado uses anhydrous ammonia as a feedstock.)

Putting this all together, I estimate the uninsured potential cost to LSB from the accident to be:

$1 million in property damage deductible.
30 days of lost operating profits from El Dorado, or about $1.8 million.

With 22.34 million shares outstanding, this amounts to an uninsured potential loss of 12.5 cents a share. It could, of course, be much lower. The fact that no one was hurt and there were no environmental releases seem to indicate that the explosion was relatively contained.

The uncertainty around the nature of the explosion seems to have investors selling first and asking questions later. Should the stock really sell off even $1 on a potential one-time loss of $0.125?

Before other investors gather their wits, this seems a great chance to get into a stock with a trailing P/E of about 9, no net debt, and significant growth expected this year. For more details on LSB, see my coverage of their first quarter earnings call last week.

May 16: Western Wind (WNDEF.PK) to Acquire Big Project Pipeline.

Western Wind Energy announced a deal to acquire a 4 GW wind development pipeline for 8 million common shares, worth $12.8 million at $1.60/share. A company spokesman told me that 40% (1600 MW) of the pipeline would be viable without the PTC. It helps that most of the projects are in Renewable Portfolio Standard state, like CA and HI.

May 17: Electric Car Sales Soar in Hawaii

JS:

Electric car supporters often talk about the perfect storm. . .

A timely mix of high gas prices, sufficient electric vehicle infrastructure, strong policy support and enough inventory to meet demand.

While I continue to believe the US will reach this perfect storm in another 10 to 15 years, it's already begun in Hawaii.

According to the latest numbers, it looks like 1.2% of all vehicles sold in Hawaii last year were electric. This, compared to 0.1% on a national level.

Of course, this isn't particularly surprising. After all, residents of Hawaii are now shelling out about $4.50 a gallon for 87 octane. And for those looking to go electric, there's now one charging station for every 5,500 residents. This is actually a pretty big deal considering just how young the EV market is right now.

Hawaii has also been a leader in policy support. With a $4,500 tax credit, HOV access, and free parking at meters and parking garages, lawmakers in Hawaii have been quite aggressive in their efforts to get more EVs on the road. The Aloha State was even the first state to disallow condominium associations from blocking the installation of home charging stations.

As an added bonus, Hawaiian Electric Co. is now running a program that offers discounts on electricity rates when consumers charge their EVs at night. And most of that power comes from wind.

By necessity, Hawaii is quickly taking the lead in the US when it comes to transitioning to the new energy economy. And it is also by necessity that the rest of the nation will eventually do the same.

Hawaii currently has a 40% by 2030 renewable portfolio standard in place, and hopes to have 40,000 EVs on the road by 2020.

May 18: New Solar Tariff Puts American Jobs at Risk

JS: Well, it happened. . .

Chinese solar modules are now expected to be hit with huge tariffs.

Here's what the Coalition for Affordable Solar Energy (pretty much the most vocal and rational voice on this issue) had to say. . .

Leaders and member companies of the Coalition for Affordable Solar Energy (CASE) today responded to the preliminary Anti-Dumping ruling by the U.S. Department of Commerce (DOC) with the following statements:

Jigar Shah, the President of CASE, stated, “Today SolarWorld received one of its biggest subsidies yet – an average 31% tax on its competitors. What’s worse, it will ultimately come right out of the paychecks of American solar workers. Fortunately, these duties are much lower than the 250% tax that SolarWorld originally requested. This decision will increase solar electricity prices in the U.S. precisely at the moment solar power is becoming competitive with fossil fuel generated electricity.”

Read more.

TK: Stagecoach Group (LSE:SGC) expands in CA and TX with purchase of part of Coach America's businesses. Read more.

Disclosure: TK: Long LXU, NFYEF

JS: No positions.

Jeff Siegel is Editor of Energy and Capital, where his notes were first published.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com, where his notes were first published.

The Most Sustainable Solar Companies

Thu, 17 May 2012 12:40:53 -0500

Ed Gunther

Trina Solar scores 94 to lead the 2012 SVTC photovoltaic (PV) solar sustainability survey.

Making the SEIA Solar Commitment.

The Silicon Valley Toxics Coalition (SVTC) released the 2012 SOLAR SCORECARD [.pdf subset] just in time for the SNEC 6th (2012) International Solar Industry and Photovoltaic Exhibition & Conference in Shanghai, China. Trina Solar Limited (NYSE:TSL) achieved the best result followed by SunPower Corporation (NASDAQ:SPWR) at 93, and CASM (Coalition for American Solar Manufacturing) protagonist SolarWorld AG (OTC:SRWRF) with 91.

In SVTC’s own words:

The Scorecard reveals how companies perform on SVTC’s sustainability and social justice benchmarks to ensure that the PV manufacturers protect workers, communities, and the environment.

SVTC has posted both a score summary and the entire survey as completed by each of the fourteen (14) firms that responded. The Solar Scorecard is said to represent 51% of global PV market share although the data source was not cited. SVTC Executive Director Sheila Davis told me the survey was sent to approximately 120 companies worldwide via postal mail and each was contacted subsequently to insure receipt and awareness.

Using the Top 10 module manufacturers of 2011 according to IMS Research as a framework, the Top 3 module manufacturers Suntech (NYSE:STP, with a score of 86), First Solar (NASD:FSLR, with a score of 74), and Yingli (NYSE:YGE, with a score of 88) responded to the SVTC survey, whereas the remaining five (5) Top 10 PV module manufacturers elected to not respond: Canadian Solar (NASD:CSIQ, with a score of 2), Sharp (OTC:SHCAY with a score of 9), Hanwha SolarOne (NASD:HSOL, with a score of 2), JinkoSolar (NYSE:JKS, with a score of 0), and LDK Solar (NYSE:LDK, with a score of 0). SVTC scored these non-responders using information posted on each respective website. Granted, PV companies are still learning about the Solar Scorecard and may not grasp its significance. Please note SolarWorld was not a Top 10 PV module manufacturer in 2011 per IMS Research.

Among the companies not responding with a score of zero (0), JinkoSolar Holding Co., Ltd. (NYSE:JKS) faced a Frankenstein like villagers protest last year because their Zhejiang, China, factory “discharges waste into the river and spews dense smoke out of a dozen chimneys.” Per “China quells village solar pollution protests” by David Stanway for Reuters, riot police broke up the protest after three days using “heavy-handed tactics”. It seems JinkoSolar did not learn much from resolving the incident.

In one of the key Solar Scorecard findings:

92% companies responding to the survey said they would publicly support extended producer responsibility, up from 57% in 2010.

Module take back programs are more than just for recycling twenty plus (20+) year old end of life modules but also about taking care of manufacturing defects and field returns because of breakage. Furthermore, producer responsibility extends beyond modules to the business exits and bankruptcies of PV manufacturers. “Solyndra Not Dealing With Toxic Waste At Milpitas Facility” again sets a worst case example and might force new manufacturing entrants to post a bond or otherwise prefund factory cleanup in the case of a company failure or shutdown. However, such contingencies are too late for the PV industry consolidation phase already underway.

In the United States, the Solar Energy Industries Association (SEIA) has yet to organize a national PV module take back and recycling program despite making the issue a priority in the 2009 press release, “U.S. SOLAR INDUSTRY TAKING THE LEAD IN PROMOTING SUSTAINABLE BUSINESS PRACTICES”. However, “SEIA Releases Solar Industry Commitment to Environmental and Social Responsibility” renewed and expanded the efforts at PV America West this year with a voluntary Solar Commitment program.

The SEIA should go further to encourage or by full member manufacturer consensus require participation in independent sustainability surveys like the Solar Scorecard. Likewise, a similar independent review would reinforce and reward sustainable sourcing and best practices in the downstream development, finance, installation, and Operations and Maintenance portions of the PV value chain.

SVTC has also created The Life Cycle of Photovoltaics (PV) visual website to follow each stage of a solar panel’s product life along with associated risks from the raw material supply chain through end of life for the Crystalline Silicon and Cadmium Telluride material sets with Amorphous Silicon and Copper Indium Gallium Selenide (CIGS) coming soon.

Kudos to SoloPower (61) for responding to the 2012 Solar Scorecard while San Jose crossroad CIGS start-up Nanosolar was once again a no show.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Strong Grid Stocks Getting Stronger

Wed, 16 May 2012 19:46:04 -0500

Will 2012 Finally be the Year of the Strong Grid?

Tom Konrad CFA

Utility infrastructure companies are seeing the beginnings of the long-anticipated infrastructure boom, and have the rising revenues and backlog to prove it.

Investing in electric utility infrastructure has long been one of my favored ways to invest in the growing renewable energy sector without having to take a bet on unproven technology. The North American grid is in badly in need of an upgrade, and increasing penetration of variable and distributed resources such as solar and wind will require further upgrades in order to link these resources to the grid and distribute the effects of these resources variability over a wider area. Smart grid projects also allow the grid to better cope with solar and wind variability, and tap the energy efficiency potential at customer sites.

Further, the natural gas boom has led to a gas pipeline building boom, which also helps the bottom line of many of these companies.

Over the last couple years since I asked if 2010 might be the “Year of the Strong Grid” this building boom has been delayed, as many companies delay capital projects amid economic uncertainty. Now, it appears that these projects cannot be delayed much longer, and most companies in the sector are showing strong earnings growth and stronger backlogs.

Earnings Surprises

On May 8, Pike Electric (NYSE:PIKE) missed earnings expectations by 2 cents, due to low storm repair revenue. Core revenue was up, and management increased their revenue guidance for the rest of 2012.

On May 3rd, MasTec, Inc. (NYSE:MTZ) reported first quarter earnings, beating analyst expectations by a cent on revenues up 26% over Q1 2011. More importantly, MasTec increased revenue guidance for the full year to $3.35 billion, compared to current analyst estimates of 3.27 billion. They also increased earnings guidance for the second quarter to $0.35 per share, compared to analyst expectations of $0.32 per share. MasTec anticipates strong growth from both wind and solar work this year. MasTec was up 4% at 11 AM.

Also on May 3rd, Quanta Services (NYSE:PWR) reported first quarter profits of 22 cents vs. expectations of 16 cents, and reversed a first quarter loss of 8 cents in 2011, and also projected a improved results in 2012, providing guidance of $1.00 to $1.20 earnings per share, and revenues of $5.4 to $5.7 billion, compared to average analyst estimates of $5.29 billion. The stock rose 4%.

On May 1, General Cable (NYSE:BGC) beat revenue estimates by $1.65 billion compared to $1.60 billion, and earnings by 49 cents a share compared to expectations of 33 cents a share. The stock jumped 11%.

On April 20, Wesco International (NYSE:WCC) beat analyst expectations for both revenue ($1.61 billion to $1.58 billion) and earnings ($1.03 to $0.96), and increased revenue projections.

On March 8, MYR Group (NASD:MYRG) beat Q4 2011 earnings expectations by 2 cents and revenues by $32 million (16%).

Canada’s CVTech Group (TSX: CVT) had a disappointing Q4 2012, but has announced strong contract awards since then, and so also seems likely to report a strong first quarter. Other companies likely to benefit from this trend are large cap companies like Honeywell International (NYSE:HON), ABB Group (NYSE:ABB), and Siemens (NYSE:SI).

2012 looks like it’s finally shaping up to be the Year of the Strong Grid.

Disclosure: Long ABB, CVT, MTZ.

An earlier version of this article first appeared on the author's Forbes.com Green Stocks blog.

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.

Green Bond Update: Wind Company Bonds

Tue, 15 May 2012 14:23:51 -0500

by Corporate Bonder

Market Overview

Data compiled by the Bank for International Settlements indicate that the total size of the global debt securities market (domestic and international) was $98.7 trillion as at September 2011, of which $89.9 trillion were notes and bonds. Governments accounted for $44.6 trillion of outstanding debt securities, financial organizations $41.9 trillion, corporations $11.2 trillion and international organizations $1.0 trillion.

The focus of this report is on corporate borrowers. US corporations are the largest debt issuers, accounting for 46% of corporate debt globally, followed by the Eurozone with 20%, Japan 9%, China 6%, and the UK and Canada with 3% each. The Merrill Lynch Global Broad Market Corporate Index (MLGBMCI), excluding financials, can be used as a proxy for the global corporate bond market in order to estimate splits by credit ratings, currency and sectors.

Two thirds of the MLGBMC Index (ex-financials) has been issued in USD and 77% has an investment grade credit rating. Capital intensive industries account the majority of issuance with Utility, Energy, Telecommunications, and Basic Industry sectors accounting for 14%, 15%, 11% and 10% respectively.

Factors affecting issuance during the March 2012 quarter

There were 849 new developed market corporate bonds issued during the quarter, raising over $414 billion. BBB rated corporations were the largest issuer group by credit rating accounting for 29%. Sub-investment grade and European issuers increased their proportion of issuance versus Q4 2011 as market sentiment improved.

The following two charts illustrate how issuance was split by credit rating and currency during the three months to 31 March 2012.

Factors affecting investor demand during the quarter

U.S. long-term mutual funds experienced $105.8 billion net inflows over the quarter. Despite appetite for risk has made a come back, investors in aggregate continued to move out of equities and into bond funds, with $10.0 billion coming out of equity funds and $93.7 billion of net inflows to bond funds over the period.

The ECB’s introduction of the Long Term Refinancing Operation and improving US economic data led to an increase in risk appetite from investors. Credit spreads tightened, particularly for bonds issued by financials and corporations based in so-called periphery nations. Some of the spread tightening has unwound at the end of the quarter and into the start of the second quarter as familiar themes of Spanish sovereign risk and bank balance sheet uncertainty re-emerged.

Developments in the low-carbon corporate bond market

The misfortunes of equity investors in publicly listed wind turbine manufacturers are well documented. The following brief analysis is a glance at the bond market for wind turbine manufacturers and explores how bond investors have fared and how they perceive the risks surrounding the companies.

The author could only find two bonds from dedicated wind turbine manufacturer companies, listed in the table below. (In addition, Suzlon (SUZLON.BO) has convertible bonds on issue, but has not issued conventional bullet bonds)

Table 1. – Wind turbine manufacturer public bonds – What currency?
Issuer	Coupon	Maturity	Price*	Yield (YTM)	Credit Spread (OAS)
Nordex (NRDXF.PK)	6.375%	2016	95	7.9%	680
Vestas (VWDRY.PK)	4.625%	2015	88	9.5%	864

* At 12/4/12

Each company had one senior unsecured bond, with the rest of their debt financed through banks in the form of term loans and revolving credit facilities.

In the author’s opinion the bond documentation carries weak covenants, more in line with investment grade bonds, rather than the high yield bonds. Further, the companies do not provide information regarding financial covenants provided to the bank lenders (and not the bond investors), which cedes control to the banks and creates uncertainty for bond investors (and even more so for equity investors).

As demonstrated in table 1, the bonds of Nordex and Vestas have lost capital value since they were issued, however Charts 1 & 2 illustrate that bond investors who bought the bonds at the issue date have broken even (so far) with coupons received making up for the capital loss. The charts also illustrate the size of the capital loss that equity investors have incurred over the same period.

While wind turbine manufacturer bonds have outperformed their equity counterparts, they have underperformed the broader bond markets. Charts 3 & 4 illustrate how the Nordex and Vestas bonds have risen in yield and credit spread versus the Merrill Lynch Eur High Yield B-BB Bond Index (an index of higher risk European corporate bonds) and the Merrill Lynch EMU Non-Financial BBB Bond Index (an index of lower risk European corporate bonds).

Neither bond has an official public credit rating. However, 4 gives us an indication of how the market perceives the credit worthiness of the bonds. The higher the credit spread, the higher the credit risk is perceived.

When the Vestas bond was originally issued, it was priced with a credit spread close to a low BBB bond, while the Nordex bond was closer to a BB rated bond. The market’s opinion of their credit worthiness has clearly deteriorated since then, with Vestas trading more in line with low single B bonds and Nordex with high single B issuers. The Vestas bond has underperformed Nordex since the latter originally issued its bond in April 2011.

Corporate Bonder is a corporate bond fund manager in the London. This article first appeared on the Climate Bonds Initiative blog.

Lime Energy Strategy Validated by Award from Central Hudson

Mon, 14 May 2012 19:28:28 -0500

Tom Konrad CFA

Lime Energy (NASD:LIME) has been a star in the very competitive energy services space recently because of its ability to maintain margins in what has been a very competitive environment. While competing small efficiency companies have been closing up shop in the Northeast, Lime has been growing revenues at 30% a year, while maintaining a gross margin of around 20%.

Recently, Lime sold off due to an earnings miss arising from a big write-off and less than expected revenues in the company’s Commercial and Industrial (C&I) division. This was the buying opportunity I was waiting for since I first wrote about the Lime last October.

Central Hudson Award

The stock has not yet recovered, but today’s announcement of the award of Central Hudson’s (NYSE:CHG) direct install program may change that.

Lime anticipates that the contract will be worth up to $25 million over a four year period, which should add about 5% to the company’s 2011 revenues for the next four years. With gross margins of approximately 20%, it should also add $500 thousand to $1 million (2 to 4 cents a share) to earnings, depending on how much extra overhead the program requires.

Lime’s Strategy

But the earnings impact is likely to be much bigger than 2 to 4 cents a share. To understand the true impact of this announcement, you have to understand the key to how Lime has maintained margins in the current tough environment, and why they took that big write-off to restructure their C&I division.

While large C&I projects are extremely competitive, and have led to shrinking margins for most of the industry, Lime has been able to leverage their utility contracts to do follow-on business with small to mid-size C&I customers. Most efficiency companies have trouble reaching these smaller customers because of the high acquisition costs for projects that only produce moderate revenue.

In the context of a utility program, the utility pays Lime to contact the businesses and implement a menu of energy efficiency measures. Lime can then offer the business a number of additional efficiency measures which will be profitable to both the business and to Lime.

The recent restructuring was intended to better align Lime’s C&I business with these utility programs, and to take advantage of the selling opportunity afforded by Lime’s utility programs.

That’s why today’s announcement is big news. The award of additional utility programs is key to Lime’s strategy. Today’s announcement tells us that strategy is working.

Disclosure: Long LIME

This article first appeared on the author's Forbes.com Green Stocks blog.

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.

Maxwell Technologies (MXWL): Buy or Steal?

Sun, 13 May 2012 19:23:11 -0500

Tom Konrad CFA

Confusion reigned following Maxwell Technologies’ (NASD:MXWL) earnings call Thursday night. What would be the impact of the company’s reduced sales growth guidance on the stocks value?

The Bulls

At below $10, I thought the stock was “a steal” and it would quickly rise by the end of the day.
CEO David Schramm and three other insiders apparently agreed with me, since they bought 48,000 shares at prices between $9 and $10.20 early the following week.
Also on the bullish side was Needham & Co analyst Micheal Lew, who said,

We believe the sluggishness in Europe is the primary reason for the tempered near-term outlook. This has led to a slight pause in demand from some of the major-end markets (i.e., wind and hybrid buses in Europe). In our view, the long-term fundamentals are very favorable for Maxwell Technologies given the global focus on emissions reductions. We believe the pullback in share price presents an entry point for investors to own MXWL shares.

Needham lowered their price target from $23 to $18.

The Bears

Skeptics included:

Analyst Jonathan Dorsheimer at Canaccord Genuity, who said

Maxwell missed slightly our and consensus estimates for Q1 and also lowered its full year implied guidance…The company cites the general European slowdown and push outs in China s hybrid bus program for the revision…Maxwell s ultracapacitor results also remain hampered by the prolonged slowdown in China’s wind market.

Our numbers came down on a lower ultracapacitor growth rate. While numbers are being tempered, we feel a 20x multiple is justified as we are still expecting a respectable high-teens growth rate over the next 2 years.

Canaccord slashed their price target from $23 to $14.

Pacific Crest also downgraded Maxwell from Outperform to Sector Perform.

What’s MXWL Worth?

Clearly, Maxwell had to fall on the downgraded growth rate guidance, but different analysts are interpreting the guidance to mean different things. In the conference call, Schramm tried to emphasize that the reduced revenue growth guidance was only for 2012, and that he expected more rapid growth to resume in following years. As he said in the Q&A,

I think this is a timing issue, that when this recovery in the world finally kicks into play, there should be pent up demand that we’ll address.

If we accept that this is a temporary growth slowdown in 2011, and annual growth will pick back up over the next year or so, we can do a rough valuation based on projected 2013 earnings.

After the recent revisions, analysts are currently projecting earnings of 56 cents per share in 2013, and 25% long term growth. However, as Cleantech Group managing director Rafael Coven told me, Maxwell is a “serial disappointer,” so we should take those projections with a grain of salt. To reflect this, I’ll assume a 20% long term growth rate.

If we then look for a Price/Earnings/Growth (PEG) ratio of 1, that translates to fair valuation of $11.2 in spring of 2014, when 2013 earnings are announced. As I write, Maxwell is trading at $8.78, so that would imply 28% appreciation over the next 21 months, or a 15% annualized return over the next 18 months.

Conclusion

Image by Stan Zurek via Wikimedia Commons

Although most analysts have slashed price targets, the price has also been slashed. Even after the recent downgrades, the average price target over 10 analysts is 18.50, according to First Call. My own valuation for early 2013 is much more conservative, yet even that allows for a 12% annualized return.

I may have been overoptimistic to say MXWL below $10 was “a steal”, but it seems like a good time to get in to a company which dominates the ultracapacitor industry.

Company insiders, who know more about their company’s prospects than any of us, have 48,000 new shares that say they think the price won’t stay this low for long, either.

Disclosure: Long MXWL

An earlier version of this article first appeared on the author's Forbes.com Green Stocks blog.

More Insiders Buying at Maxwell Technologies

Sun, 13 May 2012 19:13:32 -0500

Tom Konrad CFA

As a quick follow-up to my valuation of Maxwell Technologies (NASD:MXWL), it was not just CEO David Schramm who has been buying over the last couple of days. An astute reader brought my attention to five more insider filings on EDGAR:

Insider	Position	Date	Shares bought	Holdings	Increase
David Schramm	CEO	4/30	5,000	217,564	2.4%
Mark Rossi	Director	4/30	20,000	84,664	30.9%
Robert Guyett	Director	4/30	11,000 (option exercise)	78,664	16.3%
Yon Jordan	Director	5/1	5,000	33,997	17.2%
David Schramm	CEO	5/3	2,000	219,564	0.95%
Burkhard Goeschel	Director	5/3	5,000	27,997	21.7%
Mark Rossi	Director	5/4	5,000	89,664	7.7%

I’d normally ignore Mr. Guyett’s option exercise, as it does not greatly increase his exposure to MXWL’s share price, given that director options are often well in-the-money. However, 5,000 of Guyett’s options had an exercise price of $7.44, and the other 6,000 had an exercise price of $6.2. None of these options were due to expire in the next year.

By exercising these options, Guyett not only tied up his $223,200 of his cash for more than a year, he also gave up his right not to use these options. That right would be useful if MXWL’s share price fell below his exercise price, so he’s saying he is absolutely confident that MXWL will not fall below $7.44 in the next year. Further, he is choosing to pay tax on the immediate gain from exercise in 2012 rather than put it off until 2013.

That’s the downside. What is the upside of exercising the options now? I can think of two:

If Guyett holds the stock for more that a year, and sells it at a profit, he will be taxed at the (lower) long term capital gains rate. This makes sense if he expects MXWL to be significantly higher a year from now.
(This was my reader’s theory:) He may think this is the cheapest price he will see for the stock before the options expire in June and December of 2013, so there is less immediate tax involved in exercising them now.

Most likely, his decision was motivated by a combination of the two factors. That means Guyett is supremely confident MXWL will not fall below $7.44, and he’s pretty sure it will be significantly higher next year.

He’s not alone. Between the four of them, these insiders just put $628,350 down that says MXWL is headed up.

What do you think?

Disclosure: Long MXWL

This article first appeared on the author's Forbes.com Green Stocks blog.

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.

The Week In Cleantech: Solar Companies at Firesale Prices, and More to Come - 5/12/2012

Sat, 12 May 2012 12:41:26 -0500

Tom Konrad CFA

May 7: Auction of Uni-Solar Fails to Draw a Qualified Bid

As if there weren't enough bad signs for the solar industry these days, Energy Conversion Devices (OTC:ENERQ.PK) is cancelling the auction for United Solar Ovonic LLC (A.k.a. Uni-solar) as a going concern because of the failure to receive a qualified bid in the court-approved bankruptcy proceeding. The companies have retained an auction services firm to prepare for the sale of Uni-solar's assets.

May 8: Earnings Misses Hide Strong Revenue Trends at Ameresco (AMRC) and Pike Electric (PIKE)

Ameresco (AMRC) and Pike Electric (PIKE) reported earnings before the market open, and both missed analyst expectations, yet showed strong underlying strength in revenue growth. I went into more detail on Ameresco here.

Last week, I predicted that Pike would have a strong quarter because of strong earnings announcements and revenues at Quanta Services (PWR) and MasTec (MTZ).

While the earnings number was a slight disappointment, coming in at 6 cents compared to a predicted 8 cents, the underlying trend was strong.

While the mild winter led to a large percentage drop in storm repair revenue, down $10 million from $16 million to $6 million, Pike’s core business showed strong year-over year growth, and even made up for the storm repair shortfall. Core revenue was up $19 million to $157 million from $138 million the previous year.

Pike initially opened down 11 cents at $8.01 on the earnings headline, but finished the day up 19 cents at $8.31 after the market had had a chance to sort out the difference between recurring core revenues and the highly variable storm repair work.

May 9: Westinghouse Solar Bought by Australia's CBD

This morning, CBD Energy (ASX:CBD) and Westinghouse Solar (NASD:WEST) announced an all-share merger which will give Westinghouse shareholders and preferred shareholders 15% of the combined company on an as-converted basis. Westinghouse will gain the benefit of CBD’s financial strength, much needed because all solar manufacturers are struggling with declining prices and margins, as well as better access to global markets.

CBD will gain a foothold in the North American market, where it hopes to leverage Westinghouse’s existing relationships to sell not only for solar, but for CBD’s industrial energy efficiency products and energy storage systems.

Finally, CBD shareholders will gain the improved liquidity of a US stock market listing and Westinghouse's assets at a firesale price. Based on prices at the close on Tuesday ($0.40 per share for WEST, A$0.05 per share for CBD), the share swap amounts to a 50% haircut for Westinghouse common shareholders.

May 10: MEMC's Earnings call shows there is more pain in store for solar stocks

Yesterday, I wrote about the signs we might look for in MEMC Electronic Materials’ (NASD:WFR) first quarter earnings call that would indicate a revival for solar stocks. Cliff’s notes: There’s more pain ahead.

The signs to look for were:

The first signs of improving cash flow and margin expansion.
Progress towards MEMC’s stated goal of getting wafer production cost down to $0.20 a watt. One potential bullish sign would be if management signaled an even more aggressive $0.15 per watt goal.
Continued growth in SunEdision and and external distribution channels. Any slowdown here would be a very bearish sign.

This is what we got:

Gross margin fell to 10% from 11.6% in the previous quarter, and 18% for all of 2011.

The company “made progress” on reducing production costs, but their “cost reduction efforts are not finished.” No mention was made of adopting more aggressive cost reduction goals.
SunEdison’s pipeline of projects under construction fell to 147MW from 255MW in the previous quarter. Solar project sales declined 60%.

I’d score that about a half point out of three, for the “progress on cost reduction.” Any way you slice it, it looks bad. Other bad signs:

Weak revenue outlook for the rest of the year.
Loss per share was 26 cents, 10 cents below analyst expectations.
Revenue declined 15.6% from Q1 2011.
Margins continued to slip.

Look for a further decline in most solar stocks. There will be a bottom, but Q1 2012 was not it.

Also...

LSB Industries (NYSE:LXU) and Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF) both introducing much more efficient geothermal heat pumps (EER 40.) More here.

May 11: New Flyer (TSX:NFI, OTC:NFYEF) Sees Strengthening North American Transit Bus Market

New Flyer(TSX:NFI, OTC:NFYEF) says that more transit agencies are putting out tenders for transit buses during first quarter conference call, but the market remains very competitive. They expect selling prices to stabilize, but not increase for the rest of the year.
A123 (AONE) Systems expects to spend $6.68 million recalling potentially defective battery packs.
Investors don't understand Lime Energy's (NASD:LIME) strategy. More here.

Next Week: Alterra (TSX:AXY, OTC:MGMXF) and Ram Power (TSX:RPG, OTC:RAMPF) report first quarter earnings.

Disclosure: Long AMRC, MTZ, NFYEF, LIME, WFIFF, LXU, MGMXF, RAMPF

Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com, where his notes were first published.

Solar Gets Boring

Fri, 11 May 2012 09:38:05 -0500

Tom Konrad CFA

Assurant, Inc. (NYSE:AIZ) is announcing insurance for solar development projects today. Are you bored yet?

Insurance always puts me to sleep, but the solar industry has left a lot more investors crying into their pillows than nodding off into gentle slumber. That’s what happens when a sector, on average, falls 73% in a year, as the Guggenhiem Solar ETF (NYSE:TAN) has. And many investors in individual solar stocks are weeping harder, from even larger percentage losses.

But that does not mean that the solar industry does not have a bright future, and one such bright sign is (try not to yawn) insurance for developers. Solar is becoming a “normal” industry.

To date, developers of mid-size (100kW to 3 MW) solar projects often have difficulty finding financing for them because the projects are too small for financiers to spend much time doing due diligence, and there are a number of risks that they don’t have much experience with, such as the risk that panels from different manufacturers may break or not perform as well as expected, and the manufacturers may not have the financial strength (especially in the current climate of solar industry consolidation.)

Now Assurant has teamed with a number of leading solar industry players to offer Assurant Solar Project Insurance to address these risks at all stages of project development.

Boring? Sure. But a little ennui is just what the doctor ordered for the recently much-too-exciting solar industry.

Disclosure: None

This article was first published on the author's Green Stocks blog on Forbes.