Bloom Energy – a company goes its own way

Billy Brooks, © Bloom
© Bloom

What a roller-coaster ride: from US$ 5 at the low in 2020 to over US$ 44 at the beginning of 2021 and now at US$ 22. I did not expect such a sharp decline, but the upward exaggeration has now been followed by a downward one, which may have been helped along by the fact that around 18.4 million shares were sold short (July 2021).

Current prices are already a bargain for medium-term investors and also for myself. After all, growth of 30 per cent annually so far makes a much higher valuation seem justified. The company is on track to achieve a sustainable transition to profitability – if not in 2021 (already cash flow positive), certainly in 2022. The stock exchange has no choice but to call for higher prices here.

Chemours

More and more hedge funds join in
Institutional investors in particular, who hold almost 60 per cent of Bloom shares, want to invest more in environmental technology and sustainability. Interestingly, Insider Monkey reported that the number of hedge funds involved had risen to an all-time high of 22, with amounts ranging from US$ 25 million to US$ 33 million. These actively trade the share, so that many a stronger price movement downwards as well as upwards has its justification in this.

The big funds and capital accumulators – institutional investors with US$ 100 million each invested in Bloom – tend to take a long-term view and gradually add to their holdings when prices are weak. For me this is a good sign. These large institutional investors are, for example, Ameriprise (over US$ 460 million), Vanguard Group (US$ 314 million) or Blackrock (US$ 200 million). Recently, the investment bank J. P. Morgan raised its preliminary target price from US$ 29 to US$ 34. Others are sure to follow.

HOW

Important new technologies
A milestone was recently reached in the use of SOFC systems to drive LNG tankers, which Bloom has been working on with Samsung Heavy Industries (SHI) since 2019. Now came the certification from DNV (international certification society for ships) and ABS (American Bureau of Shipping). This was accompanied by the statement: “80 per cent of world trade is carried by sea. Bloom Energy and SHI have developed a novel solution to reduce harmful emissions and modernise one of the world’s oldest forms of commerce with innovative clean energy technology.”

Also new is a process that uses the methane that escapes during the production of natural gas and crude oil and prevents harmful emissions. With MiQ (cooperation between RMI and Systemiq), Bloom wants to show companies in the oil and gas industry new ways to minimise pollutant emissions. According to the company, 75 per cent of the 84 million tonnes produced worldwide each year could be technically prevented at very little cost. This would be the CO2 equivalent of the emissions of 60 per cent of all coal-fired power plants.
Heliogen’s Sunlight Refinery Solar Power Generation System (highly concentrated solar energy) is combined with Bloom’s electrolyser technology to produce green hydrogen very efficiently (30 per cent more efficiently than other systems, according to Heliogen). Heliogen (HLGN) goes public via SPAC.

Reports on the second quarter
A total of 433 acceptances (basis for orders) were accepted. An increase of 41 percent compared to the same period last year. Please note that the time from contract award to implementation, approval and funding takes up to one year, depending on the project. Turnover reached US$ 228.5 million, an increase of 22 per cent. The non-GAAP loss was US$ 23.6 million or US$ 0.23/share. This was driven by higher costs for materials, raw materials and vendor parts, as well as an increase in the number of employees and higher R&D expenditure. According to CFO Greg Cameron, 2022 should be a very good year for the new powerful 7.5 energy servers, which are expected to deliver over 50 per cent more performance than their predecessors.
In 2022, the company will also enter the electrolyser production business. It is 45 per cent more efficient than all other systems available today. New on board is Billy Brooks, who was responsible for the Latin American business at General Electric (GE) as well as Head of Global Sales. This again supports my vision that Bloom could be taken over by a company like GE at some point, after all GE wants to invest massively in regenerative technologies.

Conclusion: Bloom is one of the best positioned companies in the FC industry. The optimisation of the core technologies as well as the various technological cooperations (JVs) lead to the forecast of very high long-term growth. The currently depressed prices are a very good basis for the medium-term investor to enter the market. For me, a US$ 100 share in three to five years.

Risk warning
Every investor must always be aware of his own risk assessment when investing in shares and also consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid caps, i.e. they are not standard stocks and their volatility is also much higher. This report is not a buy recommendation – without commitment. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on a medium- and long-term valuation and not on a short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting, written August 12th, 2021

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