|CANADA VENTURE: Public Fuel-Cell Sector Shrinks In 2004|
By LYNNE OLVER
October 5, 2005 12:00 p.m.
VANCOUVER -- Public companies in the fuel-cell sector are suffering for their lack of commercial revenue, and investors are looking elsewhere for energy-technology profits.
Last year, 20 publicly traded fuel-cell developers saw their total revenue fall 4% to $234 million, consulting firm PricewaterhouseCoopers said Tuesday in a report.
The companies' combined net loss widened by 20%, to $465 million, and cash flow remained negative. The number of employees fell 2%, most companies cut back on research and development spending, and their collective market capitalization shrank in a year when broader stock market indexes rose.
"When we look at financial performance alone, we see a pretty bleak picture," PricewaterhouseCoopers stated.
However, the firm notes that public companies comprise less than one-third of the fuel-cell industry, which includes private firms and subsidiaries of big industrial companies. The industry is developing PEM and solid-oxide fuel cells to generate power for portable, stationary, and vehicle applications, as well as the hydrogen and other infrastructure needed to support the technology.
Sales of fuel-cell components or systems are mainly being made to government agencies, utility companies and large auto manufacturers for pre-commercial technology development and demonstration, PwC notes.
Stock Performance Mixed in 2005
But with conventional energy getting more expensive, and air quality and climate change becoming important issues, "the need for continued development of fuel cells and the creation of a hydrogen economy has never been greater," PwC adds.
Many equity investors seem tired of this theory; three of the five biggest fuel-cell developers named in the report have seen their share prices decline in 2005.
The big kahuna - Ballard Power Systems Ltd. (BLDP) - is off about 18% in Toronto year-to-date; Hydrogenics Corp. (HYGS) is down 20%; and Quantum Fuel Systems Worldwide Inc. (QTWW) has dropped 33% on Nasdaq. On the plus side, FuelCell Energy Inc. (FCEL) is up 7% this year while Plug Power Inc. (PLUG) is up about 16%.
Vancouver-based Ballard Power dominates the tables in the PwC report. The company just announced it will cut its North American workforce by another 100 positions, bringing its global workforce to about 650. That's down from Ballard's 2004 headcount of 976, According to the PwC report.
One bearish analyst, Jonathan Hykawy of Fraser Mackenzie in Toronto, said in a recent research note that, while normally he would applaud measures to preserve cash, expense cutting can also be dangerous in new-product development. He said he's perplexed about how Ballard can cut staff yet remain committed to meeting its goals and maximizing target markets.
Hykawy thinks the company will run out of capital before it has regularly profitable operations. "The point of a business is to make money, not simply to survive, and Ballard management hasn't convinced us that it has a viable plan for making money," Hykawy said in the Sept. 29 note.
He doesn't own Ballard shares and his firm doesn't have an investment-banking relationship with Ballard.
Smaller fuel-cell developers have also been hammered this year. Shares of Fuel Cell Technologies Corp. (FCT.V) of Kingston, Ont. have tumbled 52% on the TSX Venture Exchange year-to-date. The small company had to withdraw a planned equity financing last spring.
"The whole fuel-cell space is just not getting people's attention," said MacMurray Whale, an energy-technology analyst with Sprott Securities in Toronto.
There's more interest in private firms, such as Vancouver's Cellex Power Products Inc. and General Hydrogen, which are developing power units for industrial applications, and in solar-energy companies, Whale said.
In the public equity markets, "solar is where all the action is right now," particularly in Europe, Whale said.
For example, Q-Cells AG (QCE.ZZ) started trading earlier Wednesday on the Deutsche Boerse. Its first trading range was EUR48 to EUR52, well above its IPO price of EUR38 a share.
German solar energy-systems company Sunline AG plans to go public on Oct. 20, and will be the fourth solar-energy firm to do an IPO this year, after Conergy AG (CGY.XE) last March and Ersol Solar Energy AG (ES6.XE) last week.
-Lynne Olver, Dow Jones Newswires; 604-669-1595