FuelCell Energy – roller coaster ride on the stock exchange

If you hold this HZwei issue in your hands, we will know how FuelCell Energy will continue - whether it will continue: Chapter 11 (US insolvency) or reorganisation.
Giant stack from FuelCell Energy, © FuelCell Energy

If you hold this H2-international issue in your hands, we will know how FuelCell Energy will continue – whether it will continue: Chapter 11 (US insolvency) or reorganisation. What has happened? Enormous amounts of shares were traded daily by FuelCell Energy – on some days up to 150 million (computer arbitrage programs?). These were felt more than there actually are (reason: Conversion of preference shares). The interim price gain resembled an explosion, as there were even short-term prices of 1.00 US-$, while the price days before was still 0.13 US-$ (all, of course, under the aspect of the 12:1 reverse split).

Was there a plan behind this? Had they tried to destroy the company or take it over at a favourable price via bankruptcy?

In the meantime, however, there are developments that give rise to hopes that the company will be able to leave “the valley of tears”: Huron Consulting Services, a successful business consultancy according to Forbes, took over the helm in June 2019 and is to restructure the company. The Huron employee Laura Marcero (44) became Chief Restructuring Officer. The company pays very well for your services: Your hourly rates are over $750. Success bonuses also beckon.

As one of the first measures, the company “amicably” parted company with CEO Arthur A. “Chip” Bottone, who, in my opinion, was able to pay himself a sumptuous salary, but in his eight years as CEO and President, he was not able to give the company convincingly positive impulses. One must regulate now first of all the bank debts (Hercules bank) again and/or repay these, since probably credit conditions could not be kept. I just wonder why this bank isn’t accommodating. Huron is working on finding a solution step by step. An ATM program (at the market) is to be implemented, according to which new shares will be placed on the stock exchange at a value of US$ 42 million (technical term: subject to market). The proceeds can then be used to settle the debt. Meanwhile, the prices must also be right. On the other hand, this step shows that the company wants to maintain its stock exchange listing, which should also be in the interest of the business consultancy Huron. After all, the company itself could participate with a success fee, which would give the normal remuneration a not inconsiderable windfall when FuelCell is repositioned. We will see.

Exxon pays license fee

A good omen, however, is that Exxon finally gave a signal by acquiring “non-exclusive” rights of use for its proprietary carbon capture technology for US$10 million. Here I had rather expected large orders for the conversion of chemical plants than a license deal, but that may still come. Meanwhile, the UK commissioned a feasibility study for a carbon capture project with the aim of reducing CO2 emissions by 80 tonnes per day. Drax, Selby (Yorkshire), where there used to be a nuclear power plant, is now one of the largest renewable energy regions in the UK. An order from this project should only be a matter of time. In Europe, the company is also active in various FC projects and sees a great need for smaller, very efficient FC power plants with carbon capture potential, according to a press release.

Positive news from South Korea

After one year of production, the company announces that a 20 MW FC power plant in South Korea from Korea Southern Power is performing better than expected. O-Ton: “Highly efficient and affordable electrical output and heat production.” In view of the price turbulence on the stock exchange, such a report provides important and necessary confidence, as it confirms the professionalism of FuelCell Energy and, above all, its technology.

The long-standing legal dispute with the Korean licensee Posco was resolved amicably by arbitration (settlement) at the beginning of July. Unfortunately, there are no figures on this, but a solution seems to have finally been found. Posco itself wants to say goodbye to the fuel cell sector or has already done so, while competitors are heading in exactly this direction. This is like in the German automotive industry, where some (VW) focus primarily on the battery, while others are focusing more and more on the fuel cell and hybrid versions. It’s corporate policy. The future will show who is right and which path will ultimately prevail.

Business as usual

But all this shows that you do “business as usual”. What matters now is how a complete recapitalisation can be implemented, as the company has various projects, proven technology and full order books, including service and maintenance contracts for existing plants (1.4 billion are shown). Bankruptcy or delisting makes no sense. Rather the opposite is the case, as new financial resources can be better collected via the stock exchange.

Generate Capital has granted FuelCell credit lines for projects up to US$300 million. Why shouldn’t this investment company be prepared to give the company a new credit line or to become a major shareholder by taking over shares? The result would be a massive increase and revaluation of the company. It could also restore confidence.

Since I cannot judge the short sellers (investors of preference shares?), I see the perspective of the share price in two extremes: Either the (less probable) delisting via Chapter 11 or the successful restructuring with the potential of a multiple share price. I do not expect a further reversal split (capital consolidation), even though the number of shares is again in excess of 100 million and continues to increase as a result of the ATM program. I’m looking at Nel Asa, who will soon have issued 1.3 billion shares. But you have to work hard to bring the stock exchange price above 1 US $, because then the change of the stock exchange segment is prevented. According to the latest news, there is a good 180 days left here.

A conclusive assessment is unfortunately not possible for the time being, since one can only guess at the interests of the parties involved but does not know them conclusively. There is still the greatest possible risk, but also the total rebirth as Phoenix from the ashes. I’m betting on the latter.

Bloom Energy should take over FuelCell Energy via an exchange of shares, because in my opinion their carbon capture technology would be the perfect technological complement.

Sample depot at Wikifolio: BZVision

It should be mentioned here that I also take a very close look at many other listed FC companies. I compare the key data of the companies such as turnover, orders on hand, growth, but also the stock market valuation and the respective business model and take a look at the technological standing. However, companies such as the Swedish company PowerCell, the Norwegian Nel Asa and the English ITM Power (see HZwei issue Apr. 2018, with a good profit) are much too highly valued compared to companies such as Bloom Energy, Ballard and others, or the latter are too low, even though companies such as Nel Asa are strongly recommended by German stock market media, with more than 1.2 billion shares. It is also clear, however, that with the accelerating speed of the FC train on the stock exchange, all listed companies in the industry will profit from this in terms of share price – only those I prefer, feel, more / stronger.

For one year, since July 2018, I have been maintaining a sample/game depot at Wikifolio (www.wikifolio.com – BZVision) with a gaming capital of 100,000 Euro. This currently includes Ballard Power and FuelCell Energy. Hydrogenics was closed after the Cummins takeover bid and sold at a high profit, as well as the position in Plug Power was realized after the strong increase. The profit offset the loss in FuelCell Energy (after 12:1 reverse split). At the same time, I had increased Ballard Power from 20,000 by 2,000 units to 22,000 as well as FuelCell Energy in stock by 15,000 units to 18,500. After the price slump at Bloom Energy, I sold the purchased 2,000 Ballard shares with a good profit and reinvested them in 2,000 Bloom Energy.

I am confident that Ballard Power will develop disproportionately well (over the next one to three years) and that FuelCell Energy will achieve a turnaround. If this is not the case with the latter, I expect much more than just loss compensation through the price development of Ballard Power. Looking at it the other way: Should FuelCell (highly speculative) achieve the turnaround, i.e. the recapitalisation, this will of course have a positive effect on the share price and the overall portfolio. After realization I would then – in case – further expand the position in Bloom Energy (2200), but only to achieve a better risk diversification. This game depot is purely theoretical in nature. No commitment!

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 obligation. 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 mid of August 2019

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