Ballard Power Systems Inc.

 

Ballard designs and manufactures fuel cell systems.  Over the years, Ballard has improved the power density and reduced the cost of their fuel cell stacks.  Recently, Ballard formed a joint venture with a Chinese company to manufacture stacks in China to expand their market and further reduce costs. Ballard will still be manufacturing the membrane electrode assemblies (MEAs) in Burnaby B.C. and selling them to the JV – the MEAs are the majority of the real value of the fuel cell thus protecting their intellectual capital.  The market for buses in China and around the world is significant and Ballard has been signing deals for initial orders of fuel cells for the Chinese market.  One of Ballard’s customers in China, Zhongshan Broad-Ocean Motor Co. (Broad Ocean), which makes over 50 million various motors annually for customers around the world, made a strategic equity investment in Ballard representing approximately 10% of Ballard’s stock.  Ballard also supplies fuel cells for forklifts, trams, and automobiles, they have a strategic engineering agreement with Volkswagen (which has been accelerated since their emissions scandal) and another global OEM which is likely Toyota.  While Ballard is still not profitable, their market cap of approximately U.S. $560 million does not fully reflect their long-term market potential. 

 

Ests:     3Q18   4Q18   FY18    FY19

Revs    31m     38.6     116.2   151

EPS      (.02)    (.00)    (.07)    (.00)

 

P=C$4.90, U.S.$3.72, TTM EPS=(.09), Cash=23.2m, non-cash NWC=41.9m, Def Revs 8.2m

Exited position on November 2nd on abundance of caution following halted sales to China JV and risk posed if the Weichai deal does not close or is delayed. I still like the company but I’m being cautious given these material changes. 

3Q18   (.03) vs (.01), est (.02)

  • November 1, 2018, P=C$4.90, U.S.$3.72, TTM EPS=(.09), Cash=23.2m

  • Revs -32% to 21.6m, GM 30% vs 32%, Cash OpEx 10.6m, EBITDA (3.6) vs 0.9m

  • HD Motive -65% to 6.3m, Portable +124% to 1.9m, Mats Handling +31% to 2.7m, BU Power -40% to 0.3m, Tech Solutions -2% to 10.4m.

  • 12m backlog 122.7m, 12m order book 59.6m

  • Cash 23.2m vs 35.2m in 2Q due to -7.7m in CFO and $4m purchase of assets from AFCC

  • In China, pace of end-market adoption being impacted by slow rollout/permitting of fueling stations and uncertain subsidies, removed expected shipments from Synergy from Backlog

  • Disappointing developments which should be relatively short-term, certainly closing of the announced deal with Weichai is important to critical otherwise cash reserves getting low. 

Mid Quarter Update

  • September 19, 2018

  • Announced 8th generation fuel cell stack for HD Motive for launch in 2019.  Compared to current generation, it’s expected to deliver a 40% lower total cost of ownership, planned operating lifetime of > 30,000 hours, 33% increase in power density, improved system integration.  This comes on significant improvements made over the past few years.

Mid Quarter Update

  • August 29, 2018

  • Company announced $163m investment from Weichai to become largest shareholder at 19.9% at 15% premium to the 30-day average price.

  • Includes $90m technology transfer, establishment of JV with Weichai commitment to at least 2000 fuel cell vehicles.

  • In 2017, Weichai manufactured >617k engines, 149k heavy trucks, and 200k forklift trucks and had revenue of 151.6 billion RMB, equivalent to about U.S. $22.7 billion

  • Broad Ocean will invest additional $20m to maintain their 9.9% stake.

  • Agreements expected to close in 4Q18

 

2Q18 (.02) vs (.00), est (.03)

  • August 2, 2018 P=C$3.95, U.S.$3.05, TTM EPS=(.07)

  • Revs flat at 26.4m, GM 36% vs 35%, Cash OpEx 10.5m vs 8.5m, EBITDA (0.8m) vs 1.0m

  • HD Motive +9% to 13.3m, Portable +170% to 2.4m, Mats Handling -13% to 1.7m, BU Power +248% to 0.4m, Total Products +18% to 17.8m, Tech Sol -24% to 8.6m (+26% ex tech transfer revs last year)

  • New orders 87.7m, Backlog +63m q/q, 283.3m, 12m backlog +7m q/q to 96m

  • CFO (16.9m) due to 15.3m into working capital (A/R and inventories) leaving cash balance at 35.2m, $9m of the higher A/R was received in July.

  • Results are ok, new orders were strong, lots of activity taking place and mgmt. is optimistic of further announcements in the 2H, not clear how much of that is from the Audi extension but I’d guess it was $60m. Ex Audi, orders a solid 27.7m

1Q18   (.03) vs (.02), est (.02)

  • Revs -11% to 20.1m, GM 33% vs 42%, Cash OpEx 10.7m vs 10m, EBITDA -3.8m vs -0.7m

  • HD Motive +29% to 9.25m, Portable +100% to 2.4m, Mats Handling -81% to .4m, BU Power -42% to .3m, Tech Solutions -33% to 7.7m, +45% ex 6.2m tech transfer revs last year

  • A few interesting press releases over the quarter for potential business development including a deal with Hyster-Yale for OEM fuel cell forklifts rather than retrofit.

  • 12m order book 89m vs 73m at 4Q, total backlog 220m, slightly up q/q

  • Revenues were 6.5m below estimates and the trends still continue despite the hole from the tech transfer revenues last year which I highlighted as a concern in 2Q17 and mgmt. addressed last quarter, ex the tech transfer revs last year, revs would be up a solid 22%, results are characteristic that the company’s end markets are still in development phase.

  • Mgmt feels results are consistent with their outlook for the year and a softer 1H with a stronger 2H.

 

4Q17   (.01) vs est .00  FY adj EPS (.03) vs (.12)

  • Revs +31% to 40.3m, GM 31% vs 30%, Cash Opex 11.2m vs 8.1m, EBITDA 2.1m vs 1.8m

  • HD Motive +142% to 26.6m, Portable -48% to 1.5, Mats Handling -56% to 1.3, BU Power -66% to 0.7m, Tech Solutions -13% 10.2m

  • FY Revs 121.3m, adj EBITDA 3.3m vs -9.9m, positive adj EBITDA in 4 of last 5 quarters.

  • Committed orders of 91.4m for FY18 delivery not including recent LOI from Van Hool for 40 fuel cells, starts shipping in 2H.

  • Chinese facility prodn currently 500 stacks/month (6000/year), capacity >20,000, 2 stacks per bus.

  • Mgmt expects Chinese revs in FY18 to be lower than 2017 due to absence of 1-time technology transfer revs (a headwind I highlighted in 2Q17) in addition to change from sales in modules to MEAs (lower revs but majority of the values so should be higher GM) and royalties. See continued growth in EU and US but continued declining sales to Plug Power. Expect Tech solutions to be relatively flat which isn’t bad considering the 1-time technology transfer revs in FY17. Resulting in relatively flat revs in FY18 (mgmt. sees this as conservative with potential upside) and growth beyond.

  • Def revs 8.1m, Tech transfer revs 1.7m vs 4.4m, 16m in FY17

3Q17   (.01) vs (.03), est (.01)

  • Revs +54% to 31.9m, HD Motive +138% to 17.8m, Portable Power -72% to 0.9m, Mats Handling -39% to 2.0m, Backup Power -30% to 0.6m, Tech Sol +78% to 10.6m

  • GM 32% vs 31%, GP 10.2m vs 6.4m, Cash OpEx 9.4m vs 8.4m, adj EBITDA 0.9m vs (1.5)

  • Order backlog 236.8m, 12-m backlog 82.4m, deferred revenue drawdown 11m to 9.6m

  • Tech transfer revs were 3.6m in 3Q, ~1.9m remaining (earned 4.4m in 4Q16). Earned 5.8m from MEA supply agreement, $10.2m YTD.

MidQ update

  • BLDP announced fuel cell that substantially reduces amount of platinum (80% reduction, platinum can contribute 15% of total fuel cell cost).. stock was up ~36%.

  • Also announced backlog of $264m, 12m backlog of $97.2m

2Q17   (.00) vs (.04), est (.02)

  • Revs +50% to 26.5m, Power Products +29% to 15.2m, Tech Sol +93% to 11.3m, GM 35% vs 29%, GP 9.3m vs 5.1m, CashOpEc 8.5m vs 8.4m, EBITDA 1.1 vs (2.9)

  • Momentum building in bus and HD market, JV facility in China to be commissioned later this year. Today fuel cell is ~18% of the cost of a bus, vs ~50% 10 years ago.. see a path to under 10%

  • Good continued momentum, potential hurdle when the tech transfer payments from BroadOcean end as they are at very high margin (4.4m in 2016, 6.2m in 1Q17, 3.9m in 2Q17, 5.5m remaining)

1Q 17(.02) vs (.06), est (.02)

  • Revs +39% to 22.7m, Power Producers +9% to 11.1m, Tech Sol +90% to 11.5m, GM 42% vs 20%

  • (due to high Tech Sol revs, expect FYGM to be in low 30s), GP 9.6m vs 3.3m, Cash OpEx 10m vs 9.4m, adj EBITDA -0.7m vs -7.2m

  • (Revs +6.4m, GP +6.3m, EBITDA +6.5m on Tech Sol revs +5.4m and HD Motive +3.9m)

  • Order book at record levels, expanding Vancouver MEA prodn capacity for 2019 and beyond.

  • More or less in line with expectations but more importantly continue to execute on future opportunities on their Chinese and automotive relationships.

4Q 16 (.01) vs (.04), FY EPS (.12) vs (.18)

  • Revs +54% to 30.7m, Power Producers +45% to 19m, Tech Sol +71% to 11.7m, GM 30% vs 19%, GP 9.3m vs 3.8m, Cash Opex +5% to 8.1m, adjusted EBITDA 1.8m vs -2.9m, FY adj EBITDA -9.9 vs -15.3

  • Orders for 2017 delivery 87m (FY16 Revs 85.3m)