Ballard Says Fuel Cell Resurgence No Bubble Repeat

Ballard Power Systems Inc. is poised to report the first profit in its 21-year history as a public company, evidence the fuel-cell maker isn’t heading for a repeat of the 2000 technology bust.

Chief Executive Officer John Sheridan, who retires at the end of 2014 after nine years as CEO, has focused on fuel cells for buses, forklifts and telecommunications towers, shifting away from car clients like Ford Motor Co. and Daimler AG.

“When you think of Ballard today, it’s a completely different company,” Sheridan said in a March 19 phone interview. “Fifteen years ago, we were a one-track company. We were subsidizing R&D for the likes of Ford and Daimler and it didn’t make sense.”

Ballard has dropped 40 percent since reaching a six-year high of C$7.64 on March 10 as investors reassess valuations that had made fuel-cell stocks among the best performers on the Nasdaq Composite Index this year.

Burnaby, British Columbia-based Ballard, FuelCell Energy Inc. and Plug Power Inc. surged as investors bet fuel cells, which use hydrogen or natural gas to produce electricity through a chemical reaction, are becoming a clean alternative to producing power from fossil fuels.

Sales, Margins

Sales jumped 40 percent in 2013 to C$61.3 million ($55 million), the highest in three years, as gross margins improved 10 percentage points to 27 percent. The company is projecting break-even or better earnings before interest, taxes, depreciation and amortization for 2014 on an expected 30 percent increase in revenue. It has never been profitable annually on that basis, according to data compiled by Bloomberg. The company was founded in 1979 and went public in 1993, according to Ballard’s website.

Ballard’s stock remains far from its record high of C$192 at the height of the technology bubble. The shares climbed 5 percent to C$4.85 at 4 p.m. in Toronto. Ballard is still up 371 percent over the past 12 months, the best-performing stock in the S&P/TSX Clean Technology Index.

Investors at the time boosted the stock to “astronomical” levels on Ballard’s projections the automobile industry would shift to hydrogen cells from traditional gasoline, said Sheridan, who is the sixth-biggest shareholder in Ballard with a 0.4 percent stake, according to Bloomberg data. That transition remains a work-in-progress, he said.

’Big Fanfare’

“I remember the big fanfare of it, the cycle it went through and the idea that the world would be taken over by fuel cells,” said Greg Eckel, fund manager at Morgan Meighen & Associates in Toronto. Eckel helps manage about C$1.4 billion with the firm, and once owned Ballard. “It’s 14 years later and we’re seeing another go at it.”

Ballard’s medium-term plans, which will be led by Sheridan’s successor, include developing projects powering rural communities, with commercialization perhaps within the next five years, he said.

“There are real, legitimate applications for fuel cells that nobody can compete with,” said Dev Bhangui, a Toronto-based analyst at Byron Capital Markets Ltd. Fuel cells could be used in rural communities disconnected from power grids to store energy and by data centers that need an emergency power source, Bhangui said.

Ballard also supplies fuel cells to Plug Power, the top performer in the Nasdaq in the past year with an almost 3,000 percent gain, driven by orders for its forklift battery pack systems from Wal-Mart Stores Inc. and BMW Manufacturing Co. Sales to Plug accounted for 11 percent of Ballard’s revenue in 2013, according to company filings.

Elevator Stocks

Barry Schwartz, fund manager at Baskin Financial Services in Toronto, said he prefers large, steady-growth investments instead of high-risk names such as Ballard.

“Those are elevator stocks, they’re idea stocks where a story can be pitched to you in 30 seconds,” Schwartz said. He helps manage about C$600 million. “On the face of it, it makes sense, but then you dig into the details and the companies don’t make any money.”

Ballard needs to show sustained, repeatable earnings before investors will accept the company as more than a short-term fad, said Bruce Campbell, fund manager at StoneCastle Investment Management Inc. in Kelowna, British Columbia. He doesn’t own shares of Ballard.

“It’s blue-sky, it’s not valuation and numbers driven,” Campbell said.

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