July 4, 2000
StockHouse News Desk
By Brian D. Robinson (brobinson@stockhouse.com)
Fuel Cell Specialist David Redstone Reveals His Top Picks
"As far as I'm concerned, FCEL is at the stage where it is installing systems with revenue on its books so its right on the edge."
Toronto, ONT, July 4, 2000/SHfn-- David Redstone, editor of The Hydrogen & Fuel Cell Investors' Newsletter and an authority on the emerging fuel cell sector, isn't one to mince words when he reflects on the inevitable impact of the sector; "The fuel cell sector is going to be the single most important emerging sector to hit the markets." In an interview with StockHouse, Redstone covers a broad range of topics from emerging applications for fuel cells to the likely winners in the race to commercialization. As well, Redstone outlines his top picks for both the blue-chip tier-one as well as the mini-cap companies with promising technology. Several interesting IPO's are also discussed as the latest entrants hit the Street in an increasingly crowded sector.
Whenever fuel cells are discussed in terms of public companies, the inevitable questions that arise are directed mainly at commercialization dates, exactly when the company will be able to deliver a product to market. The actual commercialization date, and how far the company is from that milestone, is how all fuel cell companies are judged.
The leaders in the race to commercialization fall to industry heavyweights Ballard Power [BLDP] of Burnaby, BC and FuelCell Energy [FCEL] of Danbury, Connecticut. (StockHouse recently spoke with CEO Jerry Leitman of FCEL, in the first of a series of in-depth interviews looking at the who's who of the fuel cell sector. That interview will be featured on StockHouse within the week.) According to Redstone, FCEL has a distinct advantage to commercialization over Ballard in that FCEL is focused, at least for the time being, on the industrial power generation market and not the vehicle power generation market. It is that focus that should help propel FCEL to market sooner than Ballard as the vehicle fuel cell market--of which Ballard is the uncontested global leader-- isn't expected to reach commercialization until 2004. "As far as I'm concerned, FCEL is at the stage where it is installing systems with revenue on its books so its right on the edge," says Redstone of their success. "It's not going to take much to push that stock up fast."
Taking a look at FCEL's press releases over the past few months indicates how quickly the company is moving toward commercialization in the stationary power sector. On June 20, the company announced it had completed the successful operational trial of its 250 Kilowatt Direct FuelCell power plant at its Danbury facility. Following a hugely successful US$61.1 million financing on April 20, the company now is at the stage where it can start to deliver product to a market eagerly awaiting the technology. The company has already announced significant deals with both Japan and Germany as well as a contract with the US Department of Energy to build a 2 Megawatt Direct FuelCell power plant in Kentucky. "It's not going to take much to push that stock up fast," says Redstone as the company is quietly becoming a true first to market player.
In the meantime, Ballard Generation Systems, a subsidiary of Ballard Power focused exclusively on the stationary power generation market, has also shipped its 250-Kilowatt Proton Exchange Membrane (PEM) fuel cell power generator for field-testing to Alstom Ballard, its associate company in Berlin, Germany. This first shipment through Alstom is considered to be Ballard's initial push into field trials for Europe and its generators will be tested by a consortium of electrical companies.
A potential advantage for Ballard is in the small portable power generation market. On January 16, Ballard and Coleman Powermate, a subsidiary of Sunbeam Corporation [SOC], jointly announced they would be developing portable power units utilizing Ballard's Mark 900 fuel cell technology. It is largely believed that Ballard could have a product on the market as early as 2001. "Every year after that, Ballard will enter a new market sector ending with vehicles in 2004," says Redstone of the company's commitment to a broad spectrum of fuel cell applications. As Ballard has been pushing to enter a variety of fuel cell markets, portable power seems to be developing into its first major application.
Plug Power [PLUG] of Latham, NY rounds out Redstone's tier one picks. However, if PLUG didn't have General Electric as a partner, Redstone conceded he isn't sure where the company would be today. He indicates that the company has little to show for its development efforts to date and with large swings in the share volume, PLUG has been trading largely as a speculative buy. On June 6, the company did announce a new partnership with Engelhard Corporation [EC] of Iselin, NJ to supply advanced catalysts for PLUG's fuel processor. The details of the alliance indicate that it is mainly a cash for stock deal whereby PLUG will pay $10 million to finance EC's development efforts and in exchange, EC will purchase $10 million of PLUG's stock.
One company Redstone sees as outside tier one but definitely an emerging player is Energy Conversion Devices [ENER] of Troy, Michigan. ENER announced on May 2 that Texaco [TX], the third largest US oil company agreed to purchase 20% of the company for $67.3 million. The two companies agreed to establish further joint ventures for the development of ENER's proprietary Ovonic solid hydrogen storage technology and the Ovonic regenerative fuel cell. Together with the 20% equity interest, Texaco will maintain two members on the ENER board. Redstone indicates that the Street has traditionally shied away from ENER because the company has consistently failed to show "Every year after that, Ballard will enter a new market sector ending with vehicles in 2004."
However, with the recent Texaco announcement, ENER has positioned itself as a possible contender in the sector. Robert Stempel, former Chairman of General Motors, has now taken over as Chairman of ENER and is committed to development plans as they push further into the fuel cell sector. Another aspect of the business that could generate significant revenues is the creation of Ovonyx, Inc., which is working with Intel [INTC] in a joint venture to commercialize ENER's Ovonic Unified Memory Technology. The alliance was created in an effort to gain market share from other conventional memory types such as flash. Redstone is clearly optimistic as to ENER's prospects, "If you look at all the different technologies they're in, and how well positioned they are for the fuel cell revolution, they have to be considered a dark horse."
A few long shots with potential that Redstone sees are two NASDAQ bulletin board stocks, DCH Technology [DCHT] and Manhattan Scientifics [MHTX].
DCH is banking on the prospect of fuel cell powered vehicles in every garage. Most of its hydrogen sensors, which will be used with a fuel cell application for the home and garage, are still in development. However, the Valencia, California-based company manufactures a line of hydrogen sensors for use by various industries working with hydrogen as an industrial application. DCH is heavily involved in the safety aspect of the business and manufactures a full line of safety equipment for hydrogen leak detection. The company has been undergoing various management changes and restructuring as it attempts to position itself as a provider of hydrogen safety technology for the vehicle fuel cell market. Ballard Power has publicly stated that commercial application for fuel cells in vehicles isn't expected until 2004 at the earliest. Redstone considers DCH a highly volatile and risky investment.
Manhattan Scientifics in New York has had a troubled past including a de-listing from the NASDAQ bulletin board on February 10 when the stock was trading around $6. On May 25 when the stock resumed trading, it had lost more than half its value trading below $3. Shares have since been trading very lightly and have settled in the low $2 range, closing Tuesday at $2.18. "If you look at all the different technologies they're in, and how well positioned they are for the fuel cell revolution, they have to be considered a dark horse."
The company recently announced the testing and development of a fuel cell powered bicycle through NovArs, its operating subsidiary in Passau, Germany. MHTX is currently in discussions with various powered bicycle and scooter manufacturers and it is expected the Hydrocycle will be featured at a July trade show in Switzerland. The company claims the fuel cell technology being tested, has a potential range of applications from portable electronics to kitchen appliances and power tools. "If they prove the technology and the performance claims are verified, that stock could really pop," says Redstone of the purely speculative stock.
One fuel cell-related stock Redstone refers to as the long shot of the week, is hydrogen pellet manufacturer Powerball International [PRBL]. The company trades very thinly on the OTC, closing Tuesday at $4.50. Powerball is focused on the industrial application of hydrogen pellets and is a joint venture partner with Natex Corporation [NATX] As Redstone indicates, hydrogen and fuel cells are so inextricably linked that any business focussed specifically on hydrogen will move along parallel with the fuel cell providers.
A few IPO's in the pipeline Redstone thinks are worth a look are H Power and Proton Energy Systems. H Power is based in New Jersey with a Canadian affiliate in Quebec. The company claims to be a world leader in low power (1 Kilowatt) PEM fuel cells mainly for use in solar-powered message boards. Redstone says the company has received a commitment from a rural electrical co-op for about 12,000 units over an 8-10 year period. No date for the public offering has been set but Redstone optimistically states, "It should be the biggest IPO since PLUG."
Proton Energy Systems of Rocky Hill, Connecticut is developing a regenerative PEM fuel cell that will be able to produce and store the hydrogen, which can eventually be used in electrical generation. No expected opening price or date has been given but the company hopes to raise as much as $86 million in the offering. It is expected the company will trade on the NASDAQ under the ticker symbol PRTN.
In the coming months, StockHouse will feature several interviews with leading fuel cell analysts as well as the top performing fuel cell companies. These in-depth broad-based interviews will serve as a follow-up to the initial fuel cell article featured June 15 on StockHouse entitled Roundup: Who's Who in the Fuel Cell Race. As well, Part Two of the series will be featured to take a look at the wide array of fuel cell players including the likely winners, both large and small cap.
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