New Fortress Hydrogen agreement and other earnings follow up ?3

09:58 12-Aug-22

While I was catching up on earnings yesterday, I failed to note that PPI came in well below forecasts, falling for the first time in two years by half a percent when it was expected to rise 0.2%.  I regard this as more important than the CPI print below as it is more forward looking.  Import and export prices also fell again this morning.

Getting back to earnings, eMagin's were improved, but not enough for me, even though the stock rose.  The Vuzix call continued to highlight the gradual move toward microLED, and that company issued yet another press release touting a six-figure order.  That makes sense as Orbital's earnings are the latest confirmation on people getting back to work, which caused its operating loss to narrow.  I still plan to move both Orbital and eMagin to the public side around year end.

More interesting is Intel's latest board addition from Cadence, which continues show that it is serious about getting traction with its foundry services.  Telus getting the key regulatory and court approvals to buy Lifeworks is also good; only the U.K. and Australia remain.

Most of the news is about Alphabet, though.  Its resumed fiber build out overlaps with Lumen's footprint.  That could be taken both as competition and a sign that Lumen's geographic choices were smart.  An unrelated, renewed anti-competition lawsuit from the DoJ is expected against Google soon, and the company has received a minor fine for misleading consumers in Australia.  Hopefully, that wraps up all the news updates for this week.

As I suspected, CPI just came in flat and the core number rose 0.3%, both well below estimates.  We're far from completely out of the woods on inflation, but this is positive for the market.

China also says it has "completed various tasks" around Taiwan but will conduct regular patrols.

On 8/7/22 15:37, Esekla wrote:

China's exercises around Taiwan appear to be wrapping up on schedule and without incident today.  I maintain the stance that they should be taken primarily as a political rather than military response to the Pelosi visit.  Further, I see Beijing scheduling more exercises over the coming month between the city and Korea as supporting my view.  Thus, Himax will be the primary report for me this week, along with CPI, as already indicated.

In the interest of full disclosure, some took me to task over that note for not spelling out the standard interpretation of the unemployment report as giving the Fed a green light to continue aggressively raising rates to tame inflation, with stocks selling off accordingly.  I thought that was already obvious, and my response is that the Fed is duplicitous, not stupid.  As implied, it hasn't raised aggressively enough because it knows that inflation is what's forcing people back to work.

Per the rankings, the orders in that note also remain more important than Amsc's quarterly report, though they won't show on bottom line results until we approach year end.  The company is STILL working through the Neeltran backlog, which is hurting margins, but the process should be completed by end of fiscal 3Q22.  Potential acquirers like GE and BASF won't miss the point that book to bill has risen to over 2x, and that's before the impact of new renewable infrastructure stimulus and CHIPS+.  The company should benefit from the latter due to multiple fab projects with multiple companies.  Thus, gross margin expansion is on the horizon, even though a new REG project NOT expected this fiscal year.  I wouldn't be surprised to see on of the segments spun off, if the whole company isn't bought in the coming months.

Similarly, I have to end as I began, and note that I've just watched live video of the Senate passing Biden's scaled down agenda, which includes a credit of $3/kg of clean hydrogen.  With that out of the way, New Fortress management expects to be able to provide additional information in a matter of weeks on accessing stranded natural gas from the Marcellus for similar purposes.  From there, Zero Parks being spun off is probably is probably a fait accompli; the price trends I quoted below have only widened, making oil the new coal, and natural gas the new oil.  It may take the market some time to realize this, but I doubt the midterms will be able to reverse the trends that now appear firmly in place.

On 8/5/22 10:34, Esekla wrote:

One final update to this catchall note to document a 4K OMIB by a Virtu Director on Wednesday.  VIRT has been rising as predicted and I suspect it still has plenty of runway left before the end of month dividend.

On 8/5/22 07:43, Esekla wrote:

Telus reported moderately good results this morning:

• 32 Canadian cents of EPS beats by 3 cents
• from CAD4.4b of revenue, which was in line
• next dividend of 33.86 Canadian cents has a September 8th ex-date

With all looking well, I do not intend to write further on this, instead focusing on the jobs report, AES, and progress in Congress.  However, I will keep a lookout for future dips in the price of TU to improve upon the steady 4.6% percent yield.

On 8/4/22 11:48, Esekla wrote:

New Fortress has reached an agreement with Plug Power to build a 120MW green hydrogen plant near Beaumont, Texas.  New Fortress will own the plant and initially produce more than 50 tons per day using Plug’s industry-leading proton exchange membrane electrolysis technology.  The plant should be scalable up to nearly 500MW with the development of additional supporting infrastructure.  It seems clear to me that this is NOT FID, and would depend upon the climate change subsidies that I referenced with the report.

I've been going over the conference call multiple times with a fine-toothed comb to divine the details of development, but there's A LOT, and the executive summary is that all is proceeding as management projected.  That said, we're probably about to enter the period where there will not be a lot news as the hard real world work gets done, and the market may have gotten ahead of itself with the positive bias that I flagged two weeks ago.  Thus, though I may still follow up with further details, the minor short term caution we've seen on NFE above $50 seems appropriate to me, even though the stock still has a line of sight to massive medium to long term potential.  In keeping with my skepticism, WTI is now at $88.66 and the spread up to Brent has nearly halved to $5.50, which puts it well below Golar's contract ceiling.  Yet Henry Hub gas remains relatively stable and elevated above $8 as crunch time for Europe nears.

In this environment, I will give at least brief coverage to the Telus report scheduled for tomorrow morning.  The current price point on TU is not especially attractive, but it is close with the stock over 10% below recent highs and another dividend coming up in early September.  The income, stability and quality is exactly what one would want in this market environment, so I will want to be prepared in the event of any further price deterioration.

That does not apply to DOX, which is getting a pass from the market despite an unimpressive report last night:

• $1.27 of EPS was in line
• from $1.16b of revenue, which was slightly below expectations

As usual, the company did announce a bunch of new collaborations, including what appears to be outsourced management of Vodafone's digital transformation in Germany.

I continue to want no part of current European economics, though Intel is rumored to be close to finalizing a $5b packaging and assembly deal with Italy, which would complement its more advanced plans in Germany and Ireland.  Look for Intel's foundry business to eventually follow the lead of competitors on Google's open source silicon initiative, which should benefit fabless players like Himax.  I remain positive on HIMX, but today's drop in INTC is less attractive on the ex-div date; I will continue to monitor both prices.

I also also have only brief notes for follow up on Energy Recovery, and no investment interest in ERII.  The conference call was a bad joke, but a thankfully short one, with questions from only two analysts who probably represent insignificant funds.  The main takeaway is that the CO2 refrigeration installation is effectively a backup  system, not the integrated technology that would be appropriate for mass market.  VorTeq was not even mentioned, but to me, the gorilla in the room is that if management could not commercialize it the current environment why should be we believe anything it has to say about other development technologies.