On March 1, 2017, China Today reported in detail about the Asian country’s joint efforts together with Canada in environmental protection and clean energies. Canadian-based Ballard Power Systems was mentioned as a model example and positive force behind many fuel cell and mass transportation projects and agreements in China (bus, rails). What Ballard and the fuel cell companies discussed in the following articles have in common is that they will be in the black in two to three years’ time and that the fuel cell markets are at a turning point for the better. The five businesses and their shares should be viewed based on their very promising long-term outlook and not based on their admittedly disappointing short-term results.
If you listened to the most recent conference call about fiscal year 2016 and the business outlook for Ballard Power Systems (NASDAQ: BLDP) and, adding to that, reread the transcript of the call, you could easily feel very enthusiastic about the company’s prospects.
New year starts with well-filled schedule
Last year, revenue jumped 51 percent to USD 85.3 million and the gross profit margin increased for the second time in a row. It climbed to 28 percent for the full year and is expected to reach 30 percent – as it did in the final quarter of 2016. The contract value of bookings has already grown to more than USD 87 million and – if all goes as planned – will grow considerably more in the future. Cash reserves added up to USD 72.6 million – at zero debt. The net loss of USD 0.01 per share in the final quarter of 2016 was at least around 3 cents lower than the market or the analysts had expected. To put it another way: The company is well on its way to profitability.
By its own account, Ballard was the “opportunity of choice for fuel cell investors,” going “stronger than ever.” It occupies top spots in all the markets it serves and is investing heavily in research, as it intends to remain market leader for more than just six months. At the same time, management has been focusing on steady profit gains by concentrating on high-margin products in key markets.
When it comes to collaborations with large customers and partners – particularly in China and Japan –
China in particular is stepping on the “gas.” Ballard shareholder Broad-Ocean both placed an initial order for 10,000 fuel cell vehicles and found and won over communities and cities as buyers. Purchases range from 1,000 fuel cell buses in five years to 5,000 in two. Bus manufacturer Zhuhai Yinlong has not only placed an order for initially equipping 10 buses with fuel cell modules, but also plans to install them in 20 percent of the 35,000 electric buses manufactured each year from 2020. It would be of great interest here to know the share in revenue and profit that Ballard receives. After all, it is Ballard which supplies these Chinese businesses with the key MEA component.
Due to an existing framework agreement, the company’s USD 150 million in bookings will only be a baseline over the next five years. The total order value is expected to be much higher considering the ambitious plans and aggressive marketing strategies of Synergy und Broad-Ocean. Unfortunately, Ballard has yet to provide any details here.
The Chinese government provides another impetus to advance the implementation of fuel cells in buses by granting subsidies of up to two-thirds of the price. Which progressive community will say no to that?
Japan: First orders from Toyota Tsusho
Ballard said that it was doing well on several fuel cell markets in collaboration with Toyota Tsusho. It expressly mentioned the heavy-duty market (trucks, buses, trains), but also stationary fuel cells and materials handling (forklift trucks) as well as marine applications. As the first orders are still expected for this year, it has gathered a sizeable team in Japan to be able to collaborate closely with its Japanese business partner. In my view, this promises interesting times for Ballard in Japan and one can expect orders that are unlikely to be small. However, the Canadian-based business has been hesitant to provide any details on collaboration potential because of “the sensitive environment.” As I interpret it, this cannot really be a bad sign.
Multi-billion-dollar drone market
Fuel cell systems for the U.S. military are expected to result in interesting and, more importantly, long-term contracts. By its own account, Ballard subsidiary Protonex has been testing products together with several renown manufacturers – worldwide. A study by PwC has shown that the use of drones will increase dramatically over time – a large growth market for fuel cells. Even here, Ballard is in a perfect market position.
Conclusion: Through its collaborations and partnerships with …
Investors must understand that buying and selling shares is done at their own risk. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they do not represent stakes in big companies and the volatility is significantly higher. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the assessments put forth in this article represent exclusively the author’s own opinion. This article focuses on mid-term and long-term perspectives and not short-term profit. The author may own shares in any of the companies mentioned in this article.
Author: Sven Jösting (text was written in March 2017)