Ballard Power Systems Inc. (USA) (NASDAQ:BLDP) is drawing a lot of attention at the moment, rooted in some updates as to operational execution. The company picked up close to 15% at the start of this week, and has since pulled back a little over 4%. Is there any value in an entry on the pullback? Or, to put this another way, is this upside momentum likely to develop further as the fourth quarter matures, or are we just seeing some piqued interest on some good news?
Let’s take a look.
We’ve looked at Ballard a few times in the past, but for those that missed our coverage, let’s quickly recap before looking forward. It’s a clean and renewable energy company that primarily designs, develops, manufactures and sells electronic fuel cells for use in clean emission vehicles. It is based in Canada, but operates across Europe and China as part of various partnership arrangements in the respective regions.
A couple of major announcements in August sparked what we see as the beginning of the company’s recent upside run. The first relates to a deal with Japanese vehicle giant Toyota Motor Corp (ADR) (NYSE:TM), as part of which the latter (by way of one of its subsidiaries) will become the Japanese distributor for Ballard’s lead technology. The second, a deal with a company called Broad Ocean, through which BO acquired 10% of Ballard for $28 million cash, and agreed to include Ballard’s fuel cells in more than 10,000 electric vehicles across the next five years.
Since these two announcements first attracted speculative volume, a couple more strategic executions have hit press.
The first, a late September announcement detailing a partnership between Ballard and Volkswagen AG (ADR) (OTCMKTS:VLKAY), which we first learnt about back in February of 2015. Basically, Volkswagen is using Ballard’s technology to develop its fuel cell program, as part of a deal that is worth up to $112 million for Ballard across its six-year span. Just recently, Volkswagen put its Audi brand in charge of the fuel cell division, and the latest announcement was just a report that Audi had filed some purchase orders with Ballard.
The second, and the blockbuster from a market capitalization perspective, was the news that the company had put 12 electric buses on the roads in China. This is the first installment of a planned deployment of 300 in total, and is a nice step forward, but for us, it doesn’t really justify the 15% gains it initiated.
So what is our take?
Well, there is no question that Ballard’s technology is solid, and the partnerships it has in place are valuable, and vindicating of this fact. We think it can only be a matter of time before the company starts to draw revenues that push it towards positive cashflow, and our only real concern is the time between now and then. The company lost just shy of $16 million during the first two quarters of 2016, up considerably on its net loss of $5.8 million during full year 2015. Cash is strong, recorded at $41.3 million on hand at June 30, and it should carry the company though to mid/late next year.
With this in mind, our bottom line is this:
We like Ballard from an operational perspective. It’s making headway in a very tough space, and it’s got some big name partnerships that should help it to expand operations going forward. From a financial perspective, we’re looking for the above mentioned partnerships to start bringing in capital, primarily so that the company doesn’t have to over-rely on capital raises near term. Dilution hasn’t been overly toxic in the past, and we’d like to see it stay that way.
There’s plenty of upside on positive update related volatility, and for the next twelve months, Ballard is probably going to be a fun one to trade. As a long term allocation, if the cash starts to flow in (and the latest announcements suggest it’s only a matter of time before it does) then there’s potential there as well.
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Disclosure: We have no position in BLDP and have not been compensated for this article.