Spruce Point Capital Releases a Strong Sell Primary Research Opinion on Ballard Power Systems Inc. (Nasdaq: BLDP, TSE: BLDP)
NEW YORK, Jan. 25, 2018 /PRNewswire/ -- Report entitled "Fuel Sell Opportunity" highlights the findings of Spruce Point's on the ground due diligence on the nascent state of the China hydrogen fuel cell industry, and the significant challenges faced by Ballard's China partners, Broad Ocean and Synergy. The report discusses the potentially significant risk to Ballard's backlog and suggests that the stock has 35%-70% downside.
- China Industry Challenges: There are currently only 36 licensed fuel cell vehicles on the road in China, only six refueling stations (one is public), and limited planning being devoted to hydrogen sourcing and transportation. In Spruce Point's view, the lack of refueling infrastructure, confusion around refueling subsidies and abysmal refueling station economics pose the greatest threat to fuel cell vehicle commercialization. At this point, it still remains uncertain if China will develop the fuel cell vehicle market beyond an experimental phase.
- Broad Ocean's Failed Foray Into the Hydrogen Space: It wasn't long ago that Broad Ocean was a humble manufacturer of electric motors for appliances such as air conditioners. When Broad Ocean announced the Ballard deal in 2016, it had no prior hydrogen fuel cell experience. Since the Ballard deal was inked, Broad Ocean has announced $1 bn in hydrogen investment related projects. However, in 18 months, Spruce Point has yet to see one fuel cell module produced or vehicle using its technology.
- Broad Ocean's Cash Crunch: Spruce Point believes that Broad Ocean appears to be experiencing a cash crunch as a result of its recent acquisitions, hydrogen investments, and inability to sell any of the MEAs that it has purchased from Ballard to date. Barring a successful convertible bond issuance this year, in what has been a difficult issuance market in China, we anticipate that Broad Ocean will be unable to continue to make good on Ballard purchasing commitments. A meaningful reduction in Broad Ocean purchases is also likely to have implications for the Synergy take or pay agreement.
- Ballard is 75% Owned By Retail Investors: Insiders own less than 0.5% of company stock and risked just $1m on the Synergy JV. BLDP's valuation increase of $200m exposes investors to significant downside risk, from owning shares near a peak valuation. It is also worth noting that Broad Ocean owns 17m BLDP shares, purchased at $1.64, that it can freely began to sell in July 2018. A normalized valuation on Ballard's money losing prospects suggest 35%-70% downside or $1.15-$2.50 per share.
The research report can be found on our website at www.sprucepointcap.com and updates will be posted on twitter @sprucepointcap.
Spruce Point Capital has a short position in Ballard Power Systems, Inc and stands to benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.
Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.
