Ballard Power Systems — Update 9 May 2016

Ballard Power Systems — Update 9 May 2016

Ballard Power Systems

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Ballard Power Systems

Putting fuel cells to work

Alternative energy

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9 May 2016

Price

US$1.40

Market cap

US$220m

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Share details

Code

BLDP/BLD

Listing

NASDAQ/TSX

Shares in issue

156.9m

Business description

Ballard Power Systems’ Fuel Cell Products businesses provide clean energy products, primarily fuel cells, that reduce customer costs and risk. Ballard’s Technology Solutions business helps customers solve difficult technical and business challenges in their fuel cell programmes.

Bull

250MW of fuel cells shipped worldwide, giving a dominant position in key sectors.

Combination of design enhancements, supply chain management and achieving scale in Heavy Duty Motive business to create a strong economic value proposition by 2017/18, accelerating adoption.

US$44.3m cash at end Q116 (including cash equivalents and short-term investments).

Bear

Deployment of fuel cells for telecoms back-up power requires creation of refuelling ecosystems, delaying widespread adoption.

Restructuring reduces break-even revenue by over US$20m, but there remains potential for a dilutive placing to raise funds.

Lacklustre performance of some other fuel cell stocks negatively affects investor perceptions of the sector.

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Ballard has an established portfolio of proven fuel cell products based on its patented technology that have been shipping in commercial volumes for several years. Management is focusing on sectors where fuel cell deployment offers significant advantages to other portable propulsion sources, for example with regards to emission of pollutants and where development of an associated refuelling infrastructure is not a limitation.

Q116 results show strong growth

Ballard started FY16 with orders for delivery during the year totalling a record US$58m. This supported a 76% y-o-y rise in revenues to US$16.3m. Technology Solutions revenues increased by 38% to US$6.1m, boosted by new engineering services work on bus and tram projects in China. Revenues from the Heavy Duty Motive business almost doubled to US$3.3m, primarily attributable to demand from customers in China for deployment in buses. Materials Handling revenues grew by 59% to US$4.1m as a result of significantly higher stack shipments to Plug Power. Protonex (Portable Power), acquired in October 2015, contributed US$2.6m revenues. Revenues from Telecoms Backup Power, which is no longer core, halved to US$0.3m. The changing product mix drove a 9pp improvement in gross margin to 20%. After stripping out exceptional items totalling US$3.0m, which included US$2.2m restructuring costs, EBITDA losses narrowed by US$0.9m to US$4.2m.

Platform for sustained growth

Ballard has picked sectors capable of sustained revenue growth. The Chinese authorities are subsidising fuel cell introduction on a grand scale in an attempt to combat urban air pollution. Orders from China during FY15 for Heavy Duty Motive applications totalled US$48m, including support for 300 buses. A further order worth US$12m, for delivery during FY16 and FY17, was received during Q116. Ballard’s fuel cell stacks provide a cost-effective alternative to batteries for materials handling. Joint activity with OEMs to design purpose-built fuel cell forklift trucks broadens the potential customer base. The pilot project using Protonex’s low power fuel cell technology to power a military drone opens a new potential market.

Valuation: Premium for lower risk

Ballard’s prospective EV/sales multiple (2.6x) is slightly higher than the mean (2.1x) for our sample of fuel cell companies with an established technology. However, the strength of Ballard’s order book and diversity of customer base provides a credible platform for growth and merits a premium to the mean.

Consensus estimates

Year
end

Revenue
(US$m)

PBT
(US$m)

EPS
(US$)

DPS
(US$)

P/E

(x)

Yield
(%)

12/14

68.7

(29.3)

(0.22)

0.00

N/A

N/A

12/15

56.5

(26.0)*

(0.04)

0.00

N/A

N/A

12/16e

83.9

(25.9)

(0.16)

0.00

N/A

N/A

12/17e

101.1

(12.8)

(0.09)

0.00

N/A

N/A

Source: Bloomberg. Note: *Excluding US$19.6m gain on sale of IP.

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London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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US

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Wellington +64 (0)48 948 555

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Healthcare

Novogen — Update 9 May 2016

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