American Technology Research analyst Dave Edwards sent a note to clients following Ballard Power's (ticker: BLDP) Q3 results. Extracts:
Yesterday, Ballard released Q3 financial results which exceeded our estimates. Revenue of $16M and a pro forma loss per share of $0.18 surpassed our estimates of $15M and ($0.21), respectively. Revenue in the transportation segment declined Y/Y from $23.6M to $16.2M as expected due to development cycles and the sale of the German subsidiary, BPSAG. Power generation product revenue increased 32% Y/Y to $1.8M. While this is a small percentage of revenue, we believe it is important to monitor since it represents one of the nearer-term revenue opportunities for Ballard.
Ballard's Q3 results showed good cost containment. Operating expenses declined 9% Y/Y in Q3, and we expect this Y/Y decline to increase in Q4 as the company completes the expense reduction plan undertaken recently. As a reminder, the company's operating expenses are currently being adjusted for the sale of BPSAG and for a 12% additional cost reduction plan. Importantly, the company reiterated its guidance for cash burn in 2005 of $60-80M and introduced guidance for 2006 of $50-70M. At this rate, the company's estimated year-end cash balance of $220M should last four years, providing ample time to get further clarity on the longer-term opportunity.
All in all, Ballard's Q3 results support our positive view on the company. We believe that Ballard is a technology leader that is being positioned well by management to succeed in multiple fuel cell markets. That said, we consider our Buy rating on Ballard a "swing for the fences" call that will either work and be a huge return or will fail and be a significant loss. At this point, we believe the risk reward profile favors adding a small position to high risk oriented portfolios.
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