By Tom Konrad, Ph.D., CFA

You don’t have to own mining companies to benefit from rising metals prices.

This is a roundup of first quarter earnings notes shared with my Patreon supporters over the last week. Waste to energy operator Covanta and specialty metals recycler Umicore are both benefiting from skyrocketing metals prices.

Just as renewable energy and energy efficiency stocks have long shown that investors don’t have to own fossil fuel companies to benefit from rising prices of fossil fuels, recyclers like Covanta and Umicore are showing that you don’t have to own environmentally damaging mining companies to benefit from rising metals prices.

Covanta Earnings

Everyone could find something to like in last week’s first quarter earnings at Covanta (CVA).  

Revenue and income all showed strong growth over the prior year.  This was driven by strong pricing trends in metals, waste disposal (“tip”) fees, and energy prices.  These gains were achieved despite higher planned outages for maintenance in 2021 compared to the prior year.  This will reduce the need for additional maintenance outages later in the year.

In addition, the company increased its guidance for the full year, and expects further improvements to come from the strategic review as it renegotiates contracts or closes unprofitable operations.  It seems likely that many of these renegotiations will come at the 19 municipally owned plants in the US that it operates under contract.  The company also anticipates significant savings from overhead.

In short, everything is coming up roses.

• The company is performing well
• The macroeconomic environment is favorable
• New plants will be coming online over the next 3 years in the profitable UK market
• Additional savings are expected from the strategic review.

Covanta is definitely a stock to hold even in this relatively overvalued market.

Umicore and Hydrogen

Umicore (UMICF, UMICY, UMI.BR) released its first quarter update as well as a presentation on its positioning in the hydrogen economy in late April.  

In the business update, they’re driving with fully charged batteries:

• Metals, and especially the precious metals, prices are soaring, boosting their recycling business (which also increased its volumes)
• Automotive production is recovering, helping their catalysis business.  The shift away from light duty diesel vehicles is also helping them increase market share.

Umicore currently expects its 2021 earnings to slightly exceed the guidance released just in February.

Hydrogen

With much talk of the hydrogen economy, especially in Europe, Umicore released a timely presentation on how they have and expect to participate.  The company already has a strong position as a supplier of catalysts for the PEM fuel cells used in Fuel Cell Vehicles (FCVs), and have won a number of supply contracts for future fuel cell vehicle platforms.  As of 2020, Hyundai Motor has produced 6,781 Fuel Cell Vehicles using Umicore as a supplier.

They also announced a new partnership with Anglo American Platinum (AAL.L, ANGPF, ANGPY) to develop a liquid carrier which would be used in hydrogen transportation.  They see significant long term growth potential in both this and as a supplier of catalysts to the electrolyzer market.

Conclusion

It was hard to describe Umicore as a value stock when I added it to the 10 Clean Energy Stocks list at the start of the year, and it’s even harder today, given the 30% appreciation since then, I continue to value it for the exposure it gives to the materials used in clean transportation technologies.  Other ways to get this type of exposure include mining stocks and electric vehicle companies like Tesla (TSLA).  I do not invest in mining companies because of environmental concerns, and I do not invest in “story” stocks like EV manufacturers because I like to focus on “boring” stocks that benefit from the same trends, but not everyone is talking about.

It’s much easier to get an edge in your investment analysis when you are one of the few investors paying attention.  

DISCLOSURE: Long CVA, UMICF.

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 post Earnings Roundup: Metals Prices Boost Covanta and Umicore appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

Last week waste water treatment developer OriginClear (OCLN:  OTC/QB) announced pilot projects for rental of its commercial water systems for pool cleaning.  The company has several patents to its credit, protecting its innovations.   OriginClear has developed a proprietary catalytic process to clean up solids from waste water as well as an oxidation technology to eliminate microtoxins in water.  Unfortunately, the company has struggled to extract value from its efforts.  OriginClear has yet to report profits.  Indeed in the most recently reported fiscal year ending December 2019, revenue of $3.588 million only barely covered cost of goods of $3.217 million, let alone operating expenses that totted up to $4.279 million.

The rental gambit was first discussed by OriginClear in Marcy 2020, when the company introduced Investor Water for ‘investor-financed water systems.  As the program has unfolded it sets up an opportunity for local service providers to enter or expand mobile pool water recycling services.  OriginClear’s commercial water system makes it possible to clean or repair a pool without draining.  The method is particularly attractive for markets where water is a premium such as Arizona.  No surprise then that one of the first participants in the rental problem is a Phoenix, Arizona-based pool cleaning service.

Until third-party financing is secured OriginClear is financing the rental problem internally.  At the end of December 2019, the company had $490,614 in cash on its balance sheet and working capital of negative $7.0 million, excluding $31.6 million in derivative liability.  Eliminating current liabilities associated with the near-term commitments related to the company’s preferred stock and convertible promissory notes, brings negative working capital down to $2.4 million.  Besides current liabilities OriginClear has $3.9 million in additional long-term liabilities composed of the long-term obligations of convertible preferred stock and convertible promissory notes.

A balance sheet heavily laden with debt and short of working capital suggests OriginClear is not in a strong position to support a rental program of any proportion.  Third-party financing seems to be critical to allow this rental program to expand.  Unfortunately, that might eliminate some potential participants that cannot meet credit standards set down by traditional lenders.  OriginClear may still need to underwrite some potential relationships to capture all opportunities.

At the end of December 2019, the company had an accumulated deficit of $107.3 million built up in over a decade of operating losses.  It may require several decades to reverse this deficit and create positive shareholder equity.  As promising as the rental program may sound based on management’s introduction, it is not entirely clear how it can deliver adequate profits to bring OriginClear back out of a dangerous debt-laden situation.  Granted the company has large-scale water treatment systems targeted at municipal and industrial customers.  However, penetration of those markets has been at a snail’s pace.   Such orders are not likely to speed up given the fiscal constraints local governments are experiencing due to the coronavirus-triggered shut down that has slashed tax collections.

OriginClear’s management team deserves some credit for perseverance and creativity.  That said there may be a point at which shareholders might be better served with a divestiture of assets to a stronger player.

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.

This article was first published on the Small Cap Strategist weblog on 6/22/20.  

The post OriginClear Gambles on Marketing Program appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

A reserve split is in the works to keep shares of Babcock & Wilcox Enterprises(B&W) listed under the symbol BW on the NYSE.  The stock price of this storied environmental engineering had slipped below the Exchange’s minimum price requirements.  Ten shares will be melded into one beginning July 23, 2019.

Reverse merger math alone will not solve B&W’s problems.  One hundred and fifty two years in business, B&W has been providing environmental technologies and services for energy and industrial customers since the company’s first boiler was sold right after the American Civil War.  The company boasts that Thomas Edison was one of B&W’s first customers. Unfortunately, more recent relationships have been less than profitable and certainly less celebrated.  After reporting a string of losses and a deteriorating balance sheet, B&W leadership has had to take action. 

Just before the reverse split takes effect, B&W will close a rights offering to its shareholders.  Each share as of June 27, 2019 had the right to buy 0.987 shares of common stock at $0.30 per whole share.  If fully subscribed, the rights offering with result in the issuance of 166.7 million shares and bring in $50 million in new capital for the company.  The shares that are issued will be subject to the reverse split for a maximum of 16.7 million shares.

B&W is also making structural changes through the sale of its Bavaria, Germany-based material handling subsidiary to Deutsche Invest Mittelstand GmbH. Proceeds from the sale will be used to pay down debt  –  something B&W has a plenty.  At the end of March 2019, B&W had $190.2 million in debt, of which $180.2 million is due within the next twelve months.

The balance sheet looks a bit of train wreck, to use fancy finance terminology. Working capital is negative $209.1 million.  Creditors have to be a bit concerned given that there is currently negative $402.8 million in tangible assets.

Things are a bit dire on a day-to-day operational basis as well.  Although excluding the current portion of the long-term debt, working capital is only negative $28.9 million.  The build-up in liabilities has left equity in a negative position as well.  In this tough environment B&W management has little wiggle room with only $43.5 million in cash on the balance sheet.

B&W reported $1.0 billion in sales in the most recently reported twelve months, but could turn a profit.  Indeed, in those twelve months there was a net loss of $591.3 million or $4.14 per share.  Charges and expenses related to engineering, procurement and construction (EPC) contracts in Europe that are coming to a close.  Four of the six projects have been turned over to customers.  Negotiations with customers have resulted in agreements that limited the company’s remaining obligations for the other two.

As bleak as those numbers might make the situation seem, the recently reported quarter ending March 2019, brought with some sunshine.  The B&W Enterprises segment grew 18.5% year-over-year and cash earnings mushroomed by 115% in the same comparison.  The company’s SPIG subsidiary, an operator turnkey cooling systems, also reported progress toward profitability.

Perhaps the worst is over for B&W.   Money is coming in the door and there is hope for relief from at least some of the debt burden.  The worst appears over with unprofitable relationships.  A new look at BW shares might be well timed.

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.

This article was first published on the Small Cap Strategist weblog on 7/12/19 as “Boiler Maker in Need of a Shot”.

The post Boiler Maker in Need of a Shot appeared first on Alternative Energy Stocks.

This week MagneGas (MNGA:  NASDAQ) announced new work completed toward plans to enter the commercial pork sector with a proprietary manure processing and disposal solution.  Management held a meeting with the North Carolina Department of Environmental Quality and the U.S. Army Corps of Engineers to discuss MagneGas technology to treat agriculture waste and the state’s required environmental permit protocols.  MagneGas aims to sell to pig farmers equipment based on its innovations.

The company wants to help pig farmers address environmental problems cause by manure accumulation with its proprietary waste sterilization process.  Handling pig waste using conventional methods can be costly, but failure to comply with environmental regulations can also carry heavy penalties.  North Carolina is host to over 2,300 commercial pig operations which produce copious amounts of manure that can leach into soil and ground water.

MagnaGas’ patented ‘Plasma-Arc Technology’ can be applied to liquid waste to sterilize bacteria and pathogens.  Plasma gasification converts organic matter into synthetic gas and a slag by-product using a plasma torch powered by an electric arc.  The electric arc operates much like arc-welding machines where an electric current is struck between two electrodes.  When used on a waste stream, the plasma arc melts the inorganic portion of the waste and destroys the organic part. The result is a gas the sterilized liquids.

In early 2018, the company was awarded a grant valued at $432,000 to fund a demonstration plant at a dairy in Florida.  MagneGas will present results from the demonstration at a conference held by the Soil and Water Conservation Society later in 2018.  The group is dedicated to natural resource conservation.

The MagneGas solution is very different than combustion, in which wastes of some sort are burned with oxygen to release waste gases.  Plasma arc is more environmentally friendly.  It has been certified as meeting Department of Environmental Protection requirements for exhaust emissions.  Plasma arc can also be used to treat waste with very little pre-treatment.  This is a plus for hog farmers that need to keep operating costs to a minimum to preserve profit margins.

Pig farmers are also sensitive to capital costs.  Management believes the sales pitch for the MagneGas solution is likely to be more successful with assurances that installation can be accomplished easily and with minimal expense.  Thus the company has sought to work closely with the state of North Carolina and the EPA on permitting requirements in order to take the kinks out of the piggie’s tail, so to speak.  The permitting process is now expected to require eight to twelve months.

Entrance to the agriculture sector is going to requirement patience.  In the meantime, MagneGas has commercialized sale of gases from its process for use as a more efficient replacement for acetylene from fossil fuel.  MagneGas has rapidly gained market share with construction and industrial customers.

In the quarter ending June 2018, the company recorded $2.9 million in total sales, representing more than a tripling in revenue compared to the same period in the previous year.  Unfortunately, a significant increase in selling, general and administrative spending cut into the added profits.  The operating loss in the quarter increased to $3.4 million from $3.1 million in the year-ago period.  Thus MagneGas is still using cash in its bank account to support operations.

MagneGas ended the June 2018 quarter with $1.1 million in cash on the balance sheet.  Just before the quarter end the company had raised $556,000 in new capital through the a convertible preferred stock offering.  The capital raise helped improve working capital resources to $1.2 million.  This compares to negative working capital just six months earlier.

Income and balances were impacted by the acquisition of a distributor of the company’s distribution, Trico Welding Supplies, earlier in 2018.  Even after elimination of intercompany sales, the deal is boosting reported sales and enhancing profit margins.  The balance sheet now reflects Trico’s inventory and other balance sheet values that increased assets and liabilities.

Traders appear to be taking their time in evaluating the changes at MagneGas.  The shares continue to trade well below $1.00, providing a compelling entry point for investors with the patience to execute on management’s strategies.

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.

The post Plasma Arcs For Pig Waste appeared first on Alternative Energy Stocks.

Earlier this week Bion Environmental Technologies (BNET) received approval of a patent for its proprietary ammonia recovery process.  Bion’s technology converts livestock wastes into ammonium bicarbonate.  Patent protection in the U.S. paves the way for Bion to deliver an environmentally friendly chemical to the market at attractive profit margins.

Ammonium bicarbonate is used for a variety of purposes from leavening to crop additives.   It is the fertilizer market that has caught Bion’s attention.  The company intends to ‘close the loop’ for the agricultural sector by helping livestock producers economically dispose of waste and then delivering a fertilizer for food crops that qualifies as organic.

It is an attractive market.  Market Research Nest, an industry research firm, estimates the global ammonium bicarbonate market was valued at $1.4 billion in 2017.  China is the largest producer of ammonium bicarbonate, with a market share near 90% worldwide.  Shandong ShunTian Chemical Anhul Jinhu leads the China producers.  BASF is a leader in the U.S. and European markets.

The market for ammonium bicarbonate has actually been shrinking in recent years because of environmental concerns.  It decomposes into ammonia, carbon dioxide and water.  In a closed area the ammonia can be toxic.  It is the feedstock source for production that is worrisome for the environment.

Conventional processes for ammonium bicarbonate fertilizer are based on proven technologies and have been well optimized over decades of production.  Typically carbon dioxide is captured from gases obtained while gasifying coal.  The CO2 is absorbed into a carbonated water solution until crystals form.  The crystals are then separated from the solution by filtration or centrifugation.

Crop producers cannot claim an organic crop when using ammonium biocarbonate created by conventional methods since it is a by-product fossil fuel production. This is one factor in the dwindling market for conventional fertilizers.  Bion anticipates that its organic-qualified ammonium bicarbonate can regain interest among farmers trying to upgrade their crops to organic status.

Bion’s patented process is also expected to have environmental appeal for livestock producers, whether dairy, beef or swine.  Livestock production is responsible for as much as 20% of greenhouse gases on the planet.  Bion pledges to configure its system to the particular needs of the location and help in meeting nutrient reduction mandates imposed by the U.S. Environmental Protection Agency.  Under testing at pilot plants the systems removed as much as 95% of the nutrients in livestock effluent and reduced greenhouse gases by 90%.

Bion has not yet produced revenue from its technologies.  The company uses about $1.5 million in cash each year to support operations.  Management has been selling common stock and borrowing to raise capital.  As of the end of March 2018, Bion had $12.5 million in liabilities outstanding and had raised $107.8 million in equity.  At that time the company had only $40,403 in cash in the bank.  Since then Bion has raised modest sums through the sale of common stock.

When Bion finally puts its ammonia bicarbonate systems into the market, management expects to make strong appeal to livestock producers.  Bion’s CEO has touted the system’s attractive installation price and operating costs.   The company will earn revenue from the sale of fertilizer and receive payments from renewable energy and greenhouse gas credits under the U.S. Renewable Fuel Standard and Low Carbon Fuel Standard.

Bion has had some setbacks with earlier versions of its system. Bion had an agreement with Kreider Farms in Pennsylvania to treat dairy waste streams, and received a loan from an infrastructure investment agency in that state.  The system was commissioned in 2012, but the nutrient credit market in Pennsylvania has yet to produce meaningful revenue streams.  The dairy system remains in limited operation.  Bion has also moved forward with a system for Kreider’s poultry operation also in Pennsylvania.

Investors will need to wade through Bion’s murky explanation in its SEC filings of its relationship with Kreider.  The debt taken on to pursue that project looms large on Bion’s balance.  Additionally, prospects for realizing expected revenue seems worrisome.  There may be some need to reconfigure the business model for more certain revenue streams.

Lack of transparency by a small company with little money is always a red flag. However, the market opportunity is compelling.  Livestock producers are keen to find solutions to keep in good standing with the EPA and Bion has a viable solution at least from a technology standpoint.

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.

The post Bion: Waste To Dollars appeared first on Alternative Energy Stocks.

Pollution control stocks are publicly traded companies whose business involves technologies for removing or reducing the emissions of harmful pollutants, contaminants, and/or waste from human activity, or removing these pollutants from the environment or water.

This article was last updated on 6/25/2020.

If you know of any pollution control stock that is not listed here, or think one of the stocks above should not be in the list, please let us know by leaving a comment.

The post List of Pollution Control Stocks appeared first on Alternative Energy Stocks.

It is an irony that surrounded by the flood waters of Hurricanes Harvey and Irma, a drink of fresh, clean water may be hard to come by.  Of course, the all three levels of government make plans for stockpiling and deploying emergency bottled water well ahead of natural disasters.  Yet in the hours and days following the worst of both the recent storms, the media was filled with stories of people who lacked water.

What if water could be made manufactured?  If such a technology existed, what a boon it might be to thirsty storm victims.

Ambient Water Corporation (AWGI:  OTC/PK) has been trying to make water from thin air with a patented technology management describes as ‘atmospheric water generation.’  Actually, the technology simple extracts and concentrates water vapors from the air.  The moisture is chilled to the ‘dew point’ and then condensed in stainless steel coils that channel the water droplets to a filtering chamber.  The system can work even in localities and weather conditions where humidity is as low as 30%.  Ambient’s current system requires connection to an electric grid, but future models are expected to be compatible with wind or solar power sources.

It is a bit ironic that Ambient’s first commercial demonstration of its 400 and 800 Models is in Houston, Texas.  The units were installed at the Applied Cryo Technologies plant, where the water will be used by the company for everyday use.  The first demonstration using the Model 400 began in January 2015, and then a second demonstration was started in September 2016 with the specialized Model 800 intended for use in water scares regions.

Ambient Water has yet to generate significant revenue and is for all practical purposes a developmental stage company.  With little coming in the door, management is careful with its cash resources.  Cash used to support operations was just $66,979 in the first six months of the current fiscal year.  This level of frugality is vital given that the Company had only $1,400 in cash on its balance sheet at the end of June 2017.  Management has kept the lights on by issuing common stock to pay for services in kind and to bring just enough cash to pay current bills.  That strategy had bloated shares outstanding to over 1.9 billion by the end of June 2017.

With “going concern” stamped in bold across its corporate forehead most investors would shrink at the prospect of putting money into a long position of a sub-penny stock like AWGI.  However, with water concerns as acute as they are around the world, every technology is worth watching that has had even the smallest success in generating potable water.  Water from thin air?  Yes, Ambient Water is on my list of companies to watch!

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Water Out Of Thin Air appeared first on Alternative Energy Stocks.

After the worst of the wind and rain had died down from Hurricanes Harvey and Irma, and people began making their way back home, it became apparent that citizens of Texas and Florida would have more worries.  The U.S. Environmental Protection Agency disclosed that at least thirteen toxic waste sites in Texas were flooded and damaged by Hurricane Harvey and another forty-one Superfund sites were negatively affected.  Legacy contamination includes lead, arsenic, polychlorinated biphenyls, benzene and other carcinogenic compounds from historic industrial processes.  After Hurricane Irma over six million gallons of wastewater reportedly flowed out to the coast and the Key Biscayne aquatic preserve in Florida.

The communities in Florida and Texas need clean-up like that offered by OriginClear, Inc. (OCLN:  OTC/PK).  The company’s Electro Water Separation (EWS) system can be used for chemical-free water cleanup by municipalities, oil and gas refiners, or pharmaceutical manufacturers among others.  First contaminated water is put through an Electro Chemical Reactor, where electricity in small amounts helps concentrate and float oils and suspended solids.  The resulting sludge is removed with a mechanical ‘rake’ from the water surface.  The water is then put through a second advanced oxidation step that oxidizes and reduces the few remaining micron-sized suspended solids and dissolved contaminants. In demonstrations, OriginClear claims delivery of 99.9% removal of dispersed oil, 99.5% removal of suspended solids and successful treatment of specific chemicals such as ammonia, phosphorus and hydrogen sulfide.

One of the demonstrations completed by OriginClear is particularly interesting for decision makers in Florida and Texas.  In 2015, OriginClear used its system to treat floodwater at an industrial site in Oklahoma.  Floodwaters had invaded Prime Conduit, an electrical manufacturing plant in Oklahoma City.  The company sent its ‘crash truck’ with the OriginClear system on board directly to the site.  The mobile EWS unit is capable of treating 36 metric tons of contaminated water per day, with sufficient filter arrays to meet municipal clean water standards.

The water was laced with heavy metals and other contaminants, but the EWS delivered clear water that was approved to be disposed directly into the Oklahoma sewer system or used for beneficial use.  The treatment cost was less than the alternative solution, which was to soak up the water and truck it to a hazardous waste disposal site.

The big success in Oklahoma City suggests the OriginClear system has value in post-storm situations.  Whether the company is in a good position to deploy in an emergency is another question. 

In the twelve months ending June 2017, OriginClear reported $3 million in total sales, resulting in a net loss of $11.5 million.  The company still needs cash resources to support operations.  Cash burn was $1.3 million in the same twelve month period.  Unfortunately, the company only had $274,560 in the bank at the end of June 2017.  There is also debt on OriginClear’s balance sheet  –  $3.3 million in convertible, promissory notes.

The need for cash to keep going and a weak balance sheet are not cornerstones of a good foundation to seize market opportunity.  We note that since the June 2017 quarter ended, OriginClear completed a private placement of common stock, raising $282,000 in cash.  The company also used stock instead of cash to pay for consulting services and salaries of some senior officers. The issuance of new shares here, there and seemingly everywhere may solve the immediate cash shortage but also awakens the dilution dragon.

It is a bleak picture and all investors, even the most risk oriented sort, should think twice about a long position in OriginClear.  An investment case involving storm reaction may also be invalid.  Actually, the company has been focused on cleaning up water used in industrial process or in treating micro-toxins at municipal treatment plants or commercial bottling plants.  Candidly, ‘poop storm’ aftermath has not been a top priority for this cash-strapped company.  Nonetheless, investors with an interest in the field may still find the risks at OriginClear acceptable at the six penny stock price.

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.

The post OriginClear: Metals out of the Muck appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

Tetra Tech’s (TTEK:  NASDAQ) quarter earnings report last week was met with high drama as traders reacted with surprisingly vehement disappointment over the recent financial performance of the engineering and technology business.   The company’s stock price gapped down in the first day of trading following the announcement, falling through a significant line of price support.   The shares continued to fall and finished the week at a price not seen since mid-April 2017 before the stock began its recent drive higher.

The drama unfolded after Tetra Tech reported net earnings of $0.52 per share on $498 million in total sales in the quarter ending June 2017.  This compares to the consensus estimate of $0.54 EPS and $535.2 million in sales.  The two penny ‘miss’ was apparently seen as egregious despite the fact that reported results represented solid year-over-year growth rates in the high teens.

We believe investors may have overreacted to the news, but certainly the company is not performing as well as was expected as traders bid the stock to a new 52-week high price of $48.35 in the run up to the earnings report.  Trading in the week prior to the earnings report may have been unjustifiably exuberant and in the earnings miss an equally strong reaction was to be expected.

If not an earnings miss, perhaps it was management’s guidance that caused investor indigestion.  Management’s guidance for the year is expected to be $2.10 to $2.12 in earnings per share on sales in a range of $2.0 billion to $2.02 billion.  This is below the prevailing expectation for sales near $2.05 billion and earnings of $2.17 per share.  The difference is due in part to the disappointment in the June quarter, but also implies lower than expected results in the fourth quarter as well. Even if investors could accept the two-penny earnings miss, failing to deliver strong guidance will not be taken lightly.

The sensitivity of investors to Tetra Tech’s earnings may inject unnecessary volatility into the stock performance.  As a consulting and engineering firm focused on the environment, water and energy, Tetra Tech is bound to experience quarterly variance in earnings.  Contracts get delayed. Weather impedes work schedules.  The company is also a frequent recipient of contract awards from government and quasi-government agencies.  The pace of publicly funded programs, which tend to be years in the making and almost as long in execution, is not always in sync with the three-month cycles that govern investor thinking.

Tetra Tech shares are likely to eventually recover.  The company frequently  reports its progress with market penetration through contract announcements that serve as strong catalysts for the stock price.  Just this week Tetra Tech announced the receipt of a contract valued at $60 million from the U.S. Environmental Protection Agency (EPA).  The contract extends over the next five years to provide technical and analytical services to evaluate the ecology and health risks in fresh, ground and sea water.

The steady drumbeat of contract awards tends to sooth the insult that investors might have felt subsequent to the earnings announcement.  They also tend to cause the stock to run up as the quarter unfolds only to deflate again when the earnings announcement fails to meet expectations.  Tetra Tech’s engineering and technology service menu is appealing for investors interesting in a stake in environmental clean-up, but the business model also a bit of price volatility along the way.

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.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

The post Tetra Tech’s Two-Penny Disappointment appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Investors based in the U.S. need to look far and wide for new stock issues from renewable energy companies.  Capital markets activity has slowed in the last couple of years, in part to due to their own success.  In reaching new efficiency in energy production, renewable energy companies are generating their own internal capital and are not as dependent upon the capital markets.  The Hong Kong market has come to the rescue of U.S. investors with a ‘green’ offering

China Everbright Greentech Ltd. is now trading on the Hong Kong Exchange with the stock code 1257 following a successful offering of 560 million shares in April 2017.  The company raised $385.6 million (HK$3.0 billion) in new capital that will be used to develop business in the People’s Republic of China as well as research and development in advanced technologies.

A spin-off of parent China Everbright International, the waste-to-energy and water treatment developer, China Everbright Greentech invests in a variety of renewable energy projects.  These projects are capital-hungry and sometimes deliver volatile returns.  The spin out should help the parent to present more stable financial results.  Investors in the spinout are getting a more speculative play at a more compelling valuation.
China Everbright Greentech is a self-described “specialty environmental protection service provider.”  Its portfolio includes biomass, solar and wind energy production as well as hazardous waste treatment facilities.  Total energy product at the time of the IPO was 125.9 megawatts from solar and wind facilities and another 810 megawatts from biomass projects currently in the planning and construction stages.  Current hazardous waste treatment capacity is in excess of 500,000 tons per year.

Management has wasted no time in deploying new capital.  In late May 2017, the company announced definitive agreements for three new hazardous waste treatment projects in mainland China.  The total investment of US$102 million (RMB680 million) will add 120,000 tons per year in waste processing capacity after all construction phases are completed.

The company’s public offering document provides details on revenue and profits.  Sales value has increased in each of the last three years, with profits following.  In 2016, the company delivered HK$629.5 million (US$81.8 million) in profit on HK$3.0 billion (US$390.0 million) in total sales, representing a profit margin of 21%.  Operations generated HK$886.2 million (US$115.2 million) in cash flow.

China Everbright International remains the controlling shareholder in its greentech spin-off.  However, the offering makes room for investors of all stripes to participate in what appears to be a successful formula for growth and income.

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.

The post China Everbright Greentech appeared first on Alternative Energy Stocks.