Amsc acquisition plus WFS & Energy Recovery 1Q21 results ?3

11:15 07-May-21

Westport opened its conference call with a nod to new investors.  Management acknowledges that the mix of new vehicle technologies going forward is to be determined.  Its advantage is now with a product already in the market, but results so far are underwhelming, in my view.

Shortages are expected to affect the business in the second quarter.  Those should abate in the second half, but the pandemic situations in Europe and India add further near-term challenges.  The price increases that I've documented in natural gas won't help in the short term either, but RNG is the future.  For the most immediately important Chinese market, management sees "good progress" but provided no new information; the Huawei CFO case remains in limbo.  North America is next to be developed, but design work is required and management could not give a time frame.  Nonetheless, I see the expiration of the Cummins JV at the end of this year as the best potential catalyst.  Management could only say that it is evaluating options, though.

When you put it all together, management believes that $1b of revenue is attainable by mid-decade, which means almost tripling this year's forecast sales and doubling estimates for 2024.  I continue to think the time that Westport has lost and is losing due to the pandemic is crucial.  Though I am more interested since the share price has dropped by a third since the last report, I am still not willing to gamble on global policy and the race against competing technologies at this price.

WPRT is up 5% this morning, recovering from a pre-earnings drop on a down day.  If Westport can execute on its sales goals, then I acknowledge that WPRT is currently cheap.  It has a better chance of doing that than Energy Recovery, in my opinion, whose shares are up a little also.  Xebec remains best positioned for the long term, followed by Amsc, whose shares are up 5%.  Even so, my main explanation for the moves is the trend toward frothy stock prices and I expect they all will be very vulnerable on market downturns, with the possible exception of XEBEF, which still sports a 10% rebate rate.

Energy Recovery's conference call did contain two important points.  The company says it expects dumb bell shaped revenue for 21, meaning this quarter's numbers won't be rivaled until year end.

Secondly, the company says it will announce a a decision on whether to abandon VorTeq or how to commercialize it at the Annual Meeting on June 10th.  That will follow two additional field trials in May, to gather more data to see if the problem of extending operating lifetime can be solved.

Management also spent significant time touting its newer initiatives.  However, amounts from two Ultra-PX sales for wastewater treatment in China and India were insubstantial and hidden within Water segment.  We'll have to see how it progresses, and management promises to break out numbers when they become meaningful.

The company is also evaluating optimizing carbon dioxide refrigeration, which should have regulatory tailwinds next year in the E.U. and possibly in California later this decade.  At the Federal level, the EPA has target 85% HFC phase down in rest of U.S. by 2036, with CO2 being the likely replacement.  Air conditioning and refrigeration are major environmental problems and I could have been excited about this idea if ERII were a fraction of its current price.

At least Energy Recovery also seems to realize the market situation as it repurchased less than 2K shares of it's $50M authorization.  Enough said?

On 5/6/21 5:30 PM, Esekla wrote:

Amsc has purchased Neeltran, a private Connecticut-based company that supplies rectifiers and transformers to industrial customers for $4.5M in cash & shares (about 50/50), plus $7.6M in extinguished debt.  Neeltran had about $16M in revenue last year, which tells me that Amsc is saving another troubled supplier.  For the record, the party line is that this increases TAM for new energy products to nearly $3b.  I can see this driving efficiency over the long term, and maybe even M&A chances for Amsc.  Shares are up 2% after hours.  However, I have a hard time viewing the transaction as an immediate positive despite the very reasonable valuation.

Westport Fuel Systems has published its first quarter:

• a loss of 2 cents per share misses by a penny
• from $76.4M of revenue, which beats by $3.8M
• sold another $13.2M worth of shares at the market

As expected, the heavy duty JV with Cummins was the best performing segment.  The share count has increased by almost 8% YoY which makes the earnings miss worse.

Energy Recovery also released its first quarter report:

• 12 cents of EPS beats by 6 cents
• from $28.9M of revenue, which misses by $2.1M

Management doesn't give much update from what we already knew for Vorteq, but the discontinuation of separate reporting for the Oil & Gas speaks volumes about its eventual fate.  Maybe the market is finally catching on to this as ERII is down over 4% so far.

The conference call is ongoing.  There very well may not be anything further to say, but if there is, I will have it out by morning.