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Summary

  • Ballard Power Systems has gained an impressive 150% in 2014, but it still has more upside in store.
  • Ballard should continue benefiting from a growing fuel cell industry, and the company's tie up with Plug Power should be another advantage.
  • Ballard already supplies its solutions to big names such as Volkswagen, so it isn't surprising to see why analysts expect its earnings to grow at a rapid rate.

Ballard Power Systems (NASDAQ:BLDP) has gained remarkably in 2014. The fuel cell company is up around 150%, but the terrific run is far from over. In partnership with fellow fuel cell company Plug Power (NASDAQ:PLUG), which has also gained more than 170% so far this year, Ballard is making a number of moves to grow its business. Moreover, industry conditions are suiting Ballard. Fuel cell applications are growing at a rapid rate. According to a RNCOS report, the global fuel cell market is on track to grow at an annual rate of 22% during the period 2014-2020.

Solid results depict terrific execution

Ballard is doing its best to tap this growth, and this can be seen in its quarterly results. In the recently reported first quarter, Ballard's revenue improved by 13% to $14 million on a year-over-year basis. The bottom line growth was even more impressive, as Ballard reported a 61% improvement in loss per share to $0.03 in the first quarter, as compared to a loss per share of $0.09 in the prior-year period. Also, for fiscal 2014, Ballard is targeting 30% growth in revenue and break-even adjusted EBITDA.

Ballard is continuously making moves to improve its business. It achieved a 23% reduction in cash operating costs and a 60% improvement in adjusted EBITDA in the first quarter. Further, it also strengthened its liquidity position.

Opportunities in the industry

Looking ahead, Ballard has a number of opportunities to tap in the global fuel cell market. For example, it sees strong opportunities in telecom. Demand for telecom backup power is driven by two different value propositions through extended run time power. The first is targeted at markets with unreliable power grids. The second is targeted at markets that require network strengthening for crisis situations. Ballard is currently working with a couple of customers that reflects these two different value propositions.

Looking forward, Ballard sees good network strengthening opportunity in Germany. It is assisting FutureE, which recently secured a contract to deploy over 50 backup power systems that use Ballard's fuel cell stacks at critical sites in Germany's emergency services network. In the future, FutureE sees additional opportunities for deploying its solutions in this network.

Ballard is also seeing opportunities in Southeast Asia and India, where unreliable power grids are present in good numbers. In the U.S., network hardening activity is underway, so this is another growth area for Ballard. The company already has a robust pipeline in markets where it currently plies its trade, including Japan, Indonesia, the Philippines, and South Africa.

Additionally, Ballard is making progress in new geographic areas. It has successfully complete product trials in Pakistan, Australia, and China. It is looking forward to making a demonstration in the coming weeks in Myanmar, and it also has an impending trial with a major U.S. telecom operator. For the full year, growth in telecom backup power is expected to be in the 30% to 50% range.

The Plug Power angle

Ballard is currently in discussions with Plug Power regarding the extension of its supply agreement, which runs through 2014, as well as defining its broader strategic relationship. Its focus is to continue earning Plug Power's business by delivering the highest quality fuel cell stacks at competitive costs, along with strong customer service.

Ballard and Plug Power are collaborating in material handling. As seen on Ballard's website:

Ballard designs and manufactures high-performance FCvelocity 9SSL fuel cell stacks for use in the material handling market. Ballard has a supplier agreement with Plug Power Inc. for GenDrive hydrogen fuel cell systems in North America and Europe. Plug Power holds the largest share of the North American Class 1, 2 and 3 clean energy lift truck market. Plug Power also recently announced a joint venture with Axane, an Air Liquide subidiary, to meet growing demand for GenDrive fuel cell products in the European material handling market.

The good news here is that Plug Power's products are selling rapidly. Plug Power has received an order from Wal-Mart (NYSE:WMT) for more than 1,700 GenDrive systems over the next two years. In addition, Plug Power has a strong order book. It expects to ship more than 650 GenDrive units in the second quarter. Plug Power's backlog has also increased significantly, jumping from 1,439 units in mid-April last year to 3,719 units this year. So, Ballard's partnership with Plug Power should result in solid growth in the future.

Focus on new markets

Ballard is focusing on development stage markets. It has started a market trial of its prototype continuous power product in South Africa. This will support about 30 homes in a rural community. Later in 2014, it aims to launch the next-generation FCvelocity-HD7 power module with lower cost and a longer life for the developing bus market.

For the engineering services segment, in addition to its continuing work at Volkswagen (OTCQX:VLKAY), Ballard signed three new modest-sized engineering services contracts. It landed the contract for an automotive company requiring development of a new captive layer. It also won a contract from a client requiring development and testing of a power module from marine applications.

A potential concern

All in all, it is clear that Ballard sees a lot of growth opportunity in the fuel cell industry. However, the company needs to keep an eye on the growing usage of natural gas vehicles as they could pose a threat to the growth of fuel cell-enabled vehicles. According to a report on Yahoo! Finance:

In some countries, such as India, China, Thailand, and Brazil, a robust market for natural gas vehicles (NGVs) already exists. In others, such as the United States and Germany, NGVs are a relatively small niche. During the last few years, however, a number of major automakers have refocused their efforts in the NGV market, and growth in this category is expected to be strong across all regions in the coming years. Click to tweet: According to a recent report from Navigant Research, worldwide sales of light-duty NGVs will grow from 2.5 million annually in 2014 to 4.2 million in 2023.

"Growth in the market for natural gas vehicles is being driven by increasing supplies of low-cost, readily available natural gas, along with expanding refueling infrastructure and increasingly strict vehicle emission requirements," says John Gartner, research director with Navigant Research. "As a result, the total number of NGVs on roads worldwide will reach nearly 40 million in the next 10 years."

So, Ballard will need to continue innovating in order to improve its products and deliver solid efficiency to customers.

Fundamentals and final words

The good thing about Ballard is that it has a robust balance sheet despite being a growth stage company. It carries cash of $42 million, and a low debt of $12 million. The company doesn't have any valuation ratios yet since it is unprofitable so far, but that could change in the future. Ballard's bottom line is slated to grow 61% this fiscal year, followed by 86% in the next, according to Yahoo! Finance analysts. Finally, considering the expected growth in the fuel cell industry and Ballard's robust moves, it won't be a surprise if the stock continues gaining despite a 150% rise this year.

Source: Ballard Power Systems: This 150%-Gainer Can Still Move Higher