WPRT : NASDAQ : US$16.91 WPT : TSX
We have written about the research company that walks like an investment – and said avoid from – was it $40 down- despite the enthusiasm of Motley Fools- better to engage as a client of Jack A. Bass Managed funds is the lesson here.
COMPANY DESCRIPTION: Westport Innovations is a leading developer of technologies that allow engines to operate on gaseous fuels such as natural gas across light, medium, heavy and high horse power market applications.
Macro challenges keep share volatility high, while the company works to introduce engine platforms and book orders in ‘14. The recent follow-on offering helps alleviate cash issues near-term ($210.6M cash at year-end vs. burn of $26.9M in Q4). While we continue to favor the strategy (and the nat gas macro), risk/reward stays balanced.
Few changes this quarter, as Westport finishes a challenging 2013 and looks to transition from R&D phase to increased product adoption in 2014 (with heightened focus on cost optimization and prioritized investments goal of breakeven adjusted EBITDA for all three units by year-end).
The outlook for 2014 implies solid growth (~7-13%), despite a ~$25M headwind from discontinuation of first generation HPDI (as focus turns to roll-out of HPDI 2.0 and expectation of improved warranty accruals – work underway with several OEMs currently).
CWI and Weichai continue to grow nicely, with both JVs reporting record volumes for the year (2014 expected to benefit from ramp of ISX12G and build-out of additional capacity at Weichai). Early opportunities in rail/mining/marine also continue to progress nicely.
Our 2014 revenue/EPS estimates go to $184M/$(1.80) from $241M/$(1.90); F2015 is introduced at $300M/$(0.90).
Valuation Our $20 price target (from $28) is derived by applying a 4x multiple to our 2015 sales estimate of $300M
Posted by Jack A. Bass on February 28, 2014
WFI : TSX : C$24.37
A Canadian corporation headquartered in Fort Wayne, Indiana, WaterFurnace Renewable Energy is a leading North American manufacturer of geothermal and water-source heat pumps for the residential, commercial and institutional HVAC markets. Sold under the WaterFurnace brand name, WFI’s products are sold, installed and serviced by a growing network of independent dealers and contractors in the US and Canada and in select international markets.
All amounts in C$ unless otherwise noted.
Sustainability — Energy & Power Technologies
Q3/13 REVIEW; REITERATE BUY RATING, TARGET PRICE TO C$29.00 (FROM C$25.00)
We are reiterating our BUY rating and increasing our one-year target price to C$29.00 from C$25.00 as we roll forward our base valuation year from 2013 to 2014. Over the last few years, in our view, WaterFurnace has executed beautifully against the backdrop of a weak U.S. economy and housing market, as well as tight credit and low natural gas prices, while remaining focused on building a much broader platform (products / channels / geographic reach) to drive above-average growth over the medium to long term. With a dividend yield of 3.9%, limited liquidity, a strong track record and balance sheet, and an excellent long-term growth opportunity – with strong positive operating leverage already evident on very modest revenue growth – we continue to advise buying the shares ahead of a more meaningful top-line recovery.
Our C$29.00 target price is supported by our DCF model (12.5% discount rate, 4% terminal growth rate) to which we add a modest value for WaterFurnace’s share of the China JV (15 times forward earnings). This JV has the potential to add substantial incremental shareholder value over the next several years, in our view. This translates into P/E multiples of 23 times and 18 times our 2014 and 2015 estimates.
Posted by Jack A. Bass on December 9, 2013
FTEK : NASDAQ : US$4.00
Fuel Tech is a leading company engaged in the development, commercialization, and application of proprietary technologies for air pollution control, utility process optimization and advanced engineering services.
All amounts in US$ unless otherwise noted.
Underlying profitability helps keep share price firm here, while we look for improving demand and the intro of new solutions in 2014. Maintain HOLD, $6.00 target.
APC backlog levels stay firm right here (~$51.5M currently, ~30% blended margin), even as domestic conversion stays slow (expected pick-up in H2). International APC activity was robust (~$11.8M, supported by large Chilean order), while FUEL CHEM holds steady. The project pipeline remains encouraging (Mobotec sale opening up European opportunities), while sales cycles remain long and lumpy.
Strategic initiatives continue, with new multi-pollutant (SO2, Hg, acid gases, etc.) control solutions (recurring rev model similar to FUEL CHEM) on track for introduction toward late ‘13/early ‘14. 2013 looks to be a transition year, as the company positions itself for future growth opportunities. M&A also remains a possibility given healthy balance sheet (~$23M cash), in our view.
Our 2013 estimates go to $109.1M/$0.11 from $105.0M/$0.09, while 2014 goes to $119M/$0.12 from $115M/$0.12.
Our $6 target is based on a 1.0x EV/sales multiple applied to our 2014 revenue estimate of $119M.
Regulatory delay, lengthy utility technology adoption cycles, competition.
Posted by Jack A. Bass on August 12, 2013
Image via CrunchBase
REGI : NASDAQ : US$9.91
Renewable Energy Group is the largest producer of biodiesel in the United States. As a fully integrated producer, Renewable Energy‘s capabilities include feedstock acquisition, facility construction management, facility operations and biodiesel marketing.
While we expect shares to remain volatile given the commodity-driven economics, we stay constructive as trends remain very favorable for RIN
prices thus far in ‘13. Maintain BUY, raise target to $12.
REGI reported Q1/13 results above guidance (adjusted EBITDA of ~$5- 15M), reporting revs/adjusted EBITDA of $211.4M/$22M (on 38.9M
gallons) vs. our $201.0M/$14.7M estimates (normalized for reinstatement of blender’s credit, revenue ~$339.3M w/ credit).
Management execution stays strong, as “blender’s bounty” gets recognized (following careful contract negotiations) and capacity/distribution continue to increase. The balance sheet also stays strong, even with strategic inventory build of higher cloud point product ahead of warmer months.
RVO and favorable RIN pricing drive a strong outlook, with Q2 adjusted EBITDA expected at ~$35-50M (~55-65M gallons) and Q3 at ~$25-40M
Our ‘13 rev/adjusted EBITDA estimates go to $1.28B/$130M from $1.1B/$101.9M, while’14E goes to $1.18B/112M from $1.07B/$70.6M.
We derive our $12 target (from $9.00) by applying a 4.0x EV/EBITDA multiple to our ’14 adjusted EBITDA estimate of $111.6M.
Commodity price movements, future financing needs, project execution.
Posted by Jack A. Bass on May 3, 2013
( Western Wind is featured in The Apprentice Millionaire Portfolio from Amazon Books )
Brookfield Renewable Energy
(BEP.UN : TSX : $30.14)
Western Wind Energy
(WND : TSX-V : $2.51)
”Brookfield Renewable Energy Partners has increased its all-cash offer for the shares of Western Wind to $2.60/share from $2.50/share and has extended the expiry time of the offer to February 11, 2013 from January 28, 2013. BEP.UN indicates that 22% of independent shareholders have either entered into lock up agreements or have advised that they will tender the shares to the offer.
While this may seem like a no-brainer for Western Wind shareholders as it represents a 119% premium to the share price prior to the nouncement that it was for sale (July 28, 2012)…we suspect the Western Wind CEO will continue to posture for an even sweeter bid. Just a couple days ago, BEP.UN demonstrated their frustration with Western Wind, saying there were terminating discussions. Upon making its offer in November 2012, the company said its preferred approach was to work with the Board and the advisors towards a Board supported transaction.
However the gloves have now come off. In a recent press release, BEP.UN said, ―Unfortunately, based on Western Wind’s conduct since
commencement of the Offer it appears that Western Wind, and in particular, its CEO, has no intention of selling the Company.
In fact, Brookfield Renewable’s recent discussions with Western Wind appear to have been orchestrated by the Company to enable it to issue its January 22, 2013 news release as well as its Notice of Change to its Supplementary Director’s Circular, and raise shareholder expectations that a revised proposal will be made, despite there being no agreement or understanding between the parties regarding a proposal or its terms.‖ BEP.UN also points to the fact that Western Wind said 56 parties were interested in acquiring the company, yet no alternative proposals have emerged.
Interestingly, management of Western Wind has also managed to convince its board of directors to approve early payments of their change of control payments (despite the fact that no sale was on the horizon). Ciachurski received approximately $3 million. Better yet, Ciachurski continues to have a special bonus arrangement in which he would receive another $3 million if he gets $3.00 a share for the company…aka…the battle is
likely not over .
Posted by Jack A. Bass on January 30, 2013
Solazyme (Photo credit: Wikipedia)
Renewable Energy Group (REGI : NASDAQ : $4.81 | BUY):
Near-term conditions stay challenged given the current macro environment, while recent finalization of the RVO for ’13 at 1.28B gallons helps supports the medium-term outlook (with 2014 expected in near to medium term). While we expect shares to remain volatile (commodities, RIN controversy, etc.), we stay constructive on the longer-term opportunity. Our new price target $6.50 (from $8.50).
Solazyme (SZYM : NASDAQ : $8.50 | BUY):
Encouraging execution on milestones thus far, with commercialization efforts continuing. Algenist should continue to gain traction, while a tougher DoD budgetary environment gets embedded in the current outlook. All eyes remain on the Bunge JV facility build- out in 2013 ( and potential for future fundraising), while share volatility likely remains in the near term. Maintain BUY.
Darling International (DAR : NYSE : $16.55 | HOLD):
We remain impressed with the strategic vision (and potential for additional organic/inorganic growth) following the recent investor day. While we favor the longer- term opportunity, risk/reward is balanced into late 2012 r – markets remain oversupplied and Street expectations start to assume a quick ramp of Diamond Green Diesel (DGD) in H1/13 (not yet in our estimates).
Westport Innovations (WPRT : NASDAQ : $28.41 | HOLD): Given the recent downward revision to guidance (FY12 revs in the $340-350M range, vs. original $400-425M expectation), near-term results become less important than the expected with trajectory in ’13 (as HD shipments look to get pushed out further). We wait for additional color on the call to adjust our model. While we continue to favor management’s strategy (and the macro) believe the risk/reward stays balanced.
Fuel Systems Solutions (FSYS : NASDAQ : $16.41 | HOLD): While visibility on the ramp of model year ’13/14 volumes in North America is constrained near term, we finf the Street somewhat under-appreciating the potential for contract wins and the long-awaited Asian business to help support the outlook into the ‘13/’14 period. Maintain HOLD.
Posted by Jack A. Bass on November 1, 2012