Thursday, August 6, 1998
Ballard Power Systems
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Phone: 604-454-0900
Website: www.ballard.com
Price (8/5/98): $22 7/8
HOW DID IT DOUBLE?
The car of the future or the stock of today? For Canada-based Ballard Power Systems, banking on the potential of cleaner and more efficiently powered automobiles has fueled the shares of the patent-heavy fuel-cell maker.
Don't dust off your physics books. Understanding the how and why is secondary to the fact that Ballard has automakers excited -- and most petroleum companies biting their nails. While the traditional petroleum-quenched internal combustion engine is not marked for extinction in the near term, the environmental cry for zero-emission vehicles is more than just lip service -- in California it will be law on the other side of the millennium, and earlier this year the Chicago Transit Authority began wheeling around three Ballard-powered buses.
Next generation motoring has always been a fascinating topic, and now that Ballard is rubbing elbows with major manufacturers it has also apparently become a lucrative topic.
Daimler-Benz <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAI)") else Response.Write("(NYSE: DAI)") end if %> has a 20% stake in the company, and Ford <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> owns 15%. The company is also taking orders from the likes of General Motors and Honda. Shareholders who backed up the truck are probably popping open their gas tanks as well. Fill 'er up!
BUSINESS DESCRIPTION
Fuel cells combine hydrogen and oxygen to create electricity. The electrochemical reaction produces heat and water vapor -- environmentally sound discharges relative to the ozone depleting emissions of today's piston engines.
The oxygen is in the air. Plucking for hydrogen is a bit harder. Absent hydrogen dispensers at the quickie mart, the present plan is for reformers to extract the element, ideally from hydrogen-rich methanol.
FINANCIAL FACTS (Financials in Canadian dollars and based on Canadian GAAP)
Income Statement
12-month sales: $23.5 million
12-month income: ($10.4 million)
12-month EPS: ($0.17)
Profit Margin: N/A
Market Cap: $1599 million*
(*Market cap in U.S. dollars)
Balance Sheet
Cash: $151.1 million
Current Assets: $176.0 million
Current Liabilities: $32.2 million
Long-term Debt: $0.5 million
HOW COULD YOU HAVE FOUND THIS DOUBLE?
We have known about petroleum pollutants for years. Daimler-Benz and Ballard have been partners for a long time. Fuel cells have been in use for decades, powering NASA's Gemini and Apollo spacecraft.
All this, yet shares of Ballard, which had quietly doubled during 1996 and more than tripled last year, did not become a heavy volume favorite until earlier this year. The heightened interest, highlighted by new alliances and Ballard-friendly articles everywhere from car trade journals to Fortune, should not come as a surprise to those who have followed the progress of alternative fuels.
The most common image of environmentally friendly vehicles comes in the form of battery-powered cars. It looks nice on the Discovery Channel but fails on practicality because of short distances traveled between cumbersome recharges.
Fuel cells offer the perfect compromise, and while Ballard may have competition from the likes of United Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTX)") else Response.Write("(NYSE: UTX)") end if %>, it is retired geologist Geoffrey Ballard and the company he founded that holds or has filed for more than 200 fuel cell patents.
While few could have predicted the ignited advance in Ballard's shares, those with more than a passing interest in automotive transportation likely knew that Ballard was revving up like the combustion engines it hopes to eventually replace.
WHERE TO FROM HERE?
On Ballard's home page the company evokes a day when motor transportation will run pollution-free, with central power plants and high voltage transmission lines going the way of the buggy whip. The introductory paragraph closes by noting that the scenario is "a future which is closer than you imagine."
Well, the reality is that nobody expects fuel cell-powered cars to roll out onto the dealer showroom for at least five years -- possibly as many as ten. That may leave some wondering why Ballard, after reporting sales for the March quarter of less than $5 million, is wearing a billion-dollar market cap.
Naturally it is the future -- or rather, the perception of that future -- that has the company sitting pretty. The fact that Daimler Benz and Ford have locked up 35% of the shares outstanding has lead to a smaller float than most companies this size. That has made Ballard a volatile entity. The wild upside price surges that cooled off after a 3-for-1 stock split earlier this year came along courtesy of the spotlight on the company that has seemed to dim over the past few months. For now the downside is cushioned by the bright prospects as well as the more tangible fact that thanks to the automotive heavyweight investors, the company has $300 million in shareholder equity, half of that in cash.
Since even Daimler Benz isn't ready for mass production of fuel-cell cars until 2004, the stock speculation is bound to continue for quite some time. One significant hurdle -- the weary yet interested gas station companies -- may have found a surprising clearance last month when Mobil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> and Ford teamed up in a strategic alliance called "Let's Drive for a Better Future."
Mobil has also been in talks with Daimler Benz. So, whether or not that means methanol pumps nationwide, Ballard looks like it has its foot in yet another door -- and the door is ajar.
-Rick Aristotle Munarriz
([email protected])