P200i back-up system, © Protonex

Second quarter figures certainly fell short of expectations. All segments reported decreasing revenues. Still: The second half of 2015 should bring forth many positive developments in several areas, according to Ballard’s CEO, Randall MacEwen. FuelCell Energy would be “extremely busy.” This means: I assume that the takeover of Protonex will soon become reality, as over 50% of preliminary votes by Protonex’s shareholders were in favor of the deal. Ballard’s share price, who had been dropping quite considerably in the meantime, could have triggered re-negotiations. I believe that Protonex’s shareholders will already have taken precautionary measures by selling short Ballard shares before any takeover would occur. This could even be a key reason for Ballard’s low stock price.

According to company information, Protonex will already be contributing US$ 5 million in 2015 and over US$ 15 million in 2016 to Ballard’s total turnover. The company is considered to have high growth potential, and it will expand Ballard’s portfolio by introducing the company to new markets and products – such as military drones. At the same time, Ballard raised its capital, which ranked in another US$ 15 million. One can only shake one’s head about the way the capital increase was handled, as it was done at US$ 1.60 per share, whereas back then the stock was quoted at over US$ 2.20. It seems likely that this was a hedge as well, during which underwriters may have short-sold shares and the company would buy them back at US$ 1.60 (not uncommon, although no-one would want to admit it). The result was quite “unfortunate” and could have only been implemented with much better conditions for Ballard if there had been any good news (orders, collaborations, projects in China) at the same time. But what’s done is done.

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Ballard is exploring many avenues in China: The company seems to be negotiating with several bus manufacturers about various kinds of collaborations, from the supply of fuel-cell stacks and R&D agreements to licensed fuel-cell production and more. Here, one can still expect breakthroughs in 2015 (contracts, upfront payments, orders). Even the project where 48 Chinese cities are looking to acquire 1,000 e-buses each (battery-driven, fuel-cell hybrid, etc.) could lead to follow-up orders from time to time. Two of the cities already ordered 33 fuel-cell buses (totaling US$ 10 million). It could – at least, that is what I believe – turn into as many as 1,000+ buses, which Ballard will supply and/or for which Ballard’s partners will set up a licensed fuel-cell stack production line.

Regarding railway vehicles (streetcars, trains), Ballard has already been in business with the two biggest companies on the market. It collaborates with CRRC (a merger of CNR & CSR to become the world’s largest railway vehicle company) on a project to build a prototype of a hydrogen-driven train (to be realized in 2016) and already delivered an H2-driven streetcar prototype to CSR (see Alstom and Ballard approach the railroads). It should be expected that the signed framework agreement will be followed by contracts detailing everything from upfront payments to R&D collaboration and fuel-cell stack orders. Such a deal alone could generate high interest in Ballard’s shares.

In China, Ballard said it made, and I quote, “rapid progress“ and could very well imagine that the country will give fuel cells & H2 a massive push that would greatly outpace market development even in Japan, Germany, or the US (California’s industry, in particular). My expectations/thoughts: A bill, regulation, or CP draft might lead to a network of 10,000 H2 gas stations within three to five years – certainly not unachievable. German carmakers, such as BMW, Daimler and VW, could then be forced to give the fuel cell a more prominent place more quickly, as China has become the world’s largest car market.

In short: Globally, Ballard occupies exactly the right spot in the fuel-cell market. The company is extremely healthy, has about US$ 60 million on the bank (including a payment to be made in 2016, no debt = 1/3 of the stock exchange rating!), has various orders in the pipeline (backup power systems, fuel-cell stacks for buses, etc.), creates revenue through a framework agreement with VW (order potential of around US$ 20 million per year up to 2019/2020), and should be interested in further acquisitions that could be a perfect supplement to Ballard’s IP portfolio.

Additionally, more OEM deals (such as with automotive parts suppliers) seem likely. Last but not least, I believe that the cooperation with and the fuel-cell supply of Plug Power will increase again in the second half of this year. Plug, however, does aim at its own fuel-cell stack production, which means Ballard will be inclined to establish collaborations with other companies in the material handling segment, in order to become more independent of Plug. In some way, the low share price is self-inflicted (capital increase, Protonex financing) and is based even on “psychological” grounds on an oil price in free fall. Whoever has the time should take advantage of the greatly underwhelming stock prices, because fuel cells and H2 are clearly forward-looking technologies, which will even inspire a megatrend, as clean energy has become a global issue.

This post was written in September 2015 by Sven Jösting.

Note on risk
When investing in shares, every investor must make their own risk assessment, and ensure an appropriate spreading of the risk. The FC companies and/or shares stated here come from the area of small and mid-caps, which means that they do not constitute standard values and their volatility is far higher. This report does not provide purchasing recommendations – and no guarantees are made. All of the details are based on publicly accessible sources, and in terms of the forecasts they only represent the personal opinion of the author.