Ballard Power Systems: This Fuel Cell Player Looks Set To Improve

Sep. 4.14 | About: Ballard Power (BLDP)

Summary

Ballard is delivering solid growth in revenue and EBITDA.

Ballard Power Systems has built up an impressive order book, which indicates that it is benefiting from a fast-growing fuel cell market.

Ballard's partnership with Plug Power will allow it to profit from the material handling market.

It is not surprising to see that shares of fuel cell company Ballard Power Systems (NASDAQ:BLDP) have appreciated close to 150% this year. The company has been delivering rapid growth in a fast-growing fuel cell market. In fact, in the second quarter, Ballard's revenue increased 27% year over year. In addition, Ballard's bottom line improved 14%, clocking a net loss of $4.5 million, down from a loss of $5.2 million a year ago.

The improvement in the adjusted EBITDA was even more impressive, with Ballard reporting year-over-year growth of 63% in the metric. Hence, it is clear that Ballard is making the most of the opportunity in the fuel cell market, and it is delivering terrific growth in its metrics. Looking ahead, the company's performance should continue getting better, as the industry is growing at a fast pace. As per a RNCOS report, the global fuel cell market is slated to grow at an annualized rate of 22% from 2014-2020.

A strong order pipeline

Ballard has racked up a robust order book to benefit from the fuel cell market. For the third quarter, Ballard expects to capture additional business by delivering more than 100 ElectraGen systems. Now, this exceeds the entire volume of ElectraGen shipments in the previous quarter. ElectraGen shipments are expected to come in at 170 units in total in the ongoing quarter, signifying robust traction in the business.

Moreover, Ballard has also strengthened its business relationship with its channel partner Nokia Siemens Network. Ballard has won business at SoftBank, a key Japanese carrier, through its relationship with NSN. Looking ahead, Ballard expects to expand its business in the latter half of the year by partnering with two supplementary carriers.

Another thing worth noting is that Ballard is gaining traction across the globe. Recently, it completed the primary installation of 20 systems in Philippines. It also received a quote from Globe Telecom for the commercially launch of 154 fuel cell systems. It expects this prospective client to respond to its quote in the fourth quarter.

In addition, Ballard is also updating the telecom infrastructure in Myanmar. Ballard also has a key order from a customer in China, and expects to begin shipments during the third quarter. Moreover, Ballard is performing field trials in India with four telecom carriers. In Europe, Ballard expects to win a major stack order from a crucial long-term customer by the end of third quarter. Finally, Ballard expects to ship 30 more systems in the Caribbean during the third quarter, bringing the total number of system shipments to the Caribbean to nearly 200.

Product introductions and growing agreements

Ballard is well-positioned to tap the fuel cell opportunity, as it is entering into contracts with several players for its fuel cell applications, strengthening its sales pipeline in the process. For example, its IP licensing business is doing well, delivering strong growth and healthy margins ,apart from ensuring future royalty streams.

Ballard will be launching its next-generation, cost-effective fuel cell stack next year, specifically designed for usage in the ElectraGen product family. The new product is in line with its strategy of delivering superior performance and higher value products, and is expected to further solidify its competitive market position.

Going forward, Ballard plans to employ licensing for developing new markets, facilitate new distributors, and build new product supply business in accordance with its Azure Bus Licensing Agreement. Ballard has tied up with Azure Hydrogen for assembling the ElectraGen Telecom Backup Power systems in China. This deal is expected to generate nearly $6 million for the company in the first year. But, the good thing is that Ballard' will also have an opportunity to increase its stack sales and royalties as a result of this deal in the long run. Moreover, Ballard has also signed a multi-year contract with Volkswagen (OTCQX:VLKAY) for enabling key engineering services contracts.

Ballard has also struck up a new licensing agreement with United Technologies (NYSE:UTX). This gives it the potential to increase licensing sales, while also providing it with additional engineering services contracts and improvement in the product margin.

Material handling prospects

Ballard's material handling segment is also witnessing robust shipment activity, driven in part by its partnership with Plug Power (NASDAQ:PLUG). Plug Power recently won an order from Central Grocers for 182 GenDrive systems. It also received a healthy order from Ace Hardware, while also landing an order from Wal-Mart (NYSE:WMT) for 286 GenDrives.

These contract wins by Plug Power should benefit Ballard going forward, as both companies are engaged in a material handling agreement. According to a press release:

"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."

Conclusion

Hence, Ballard's long-term prospects look bright as the company is winning new orders, has lucrative partnerships, and is also focused on launching better products. In addition, Ballard has a decent balance sheet with $36 million in cash and $12 million in debt. Its liquidity position is also strong, as evidenced by a current ratio of 2.74. Looking forward, Ballard is expected to continue improving its bottom line at an impressive pace, delivering growth of 55% this year, and an even more robust 87% next year.

As a result, investors should continue holding the stock as it has the potential of delivering more upside even after gaining close to 150% this year.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.