Best stock to invest in – Ocean Power Nets A Discerning Buyer



Best stock to invest in

by Debra Fiakas CFA

Earlier this week shares of Ocean Power
Technologies
(OPTT: 
Nasdaq) soared as the company announced its first commercial order
for its PowerBuoy hydrokinetic devices.  The order represents a
modest $975,000 in potential revenue, but the customer, Mitsui Engineering and
Shipbuilding Co. Ltd
., provides extra value as a discerning
buyer.  PowerBuoys are built to capture the energy in
ocean waves to drive an electrical generator.  Power output can
be delivered to nearby ocean or terrestrial installations. 
With worldwide interests in the numerous marine markets, Mitsui
could develop into a large and long-standing customer.

OPTT traded as high as $6.79 in the first hours following the
earnings announcement, representing a fourfold increase from the
closing price the day before.  Since that first frenzied day of
trading with unprecedented volume, things have settled down a
bit.  However, it is clear the Mitsui opportunity has resent
investors’ views on Ocean Power.

Quick to take advantage of the newly kindled fervor, Ocean Power
announced the pricing of a registered offering of common
stock.  A total of 417,000 shares with a warrant attached to
each will be sold at $4.60.  Each warrant buys about a third of
a common stock share at $6.04 per share.  A fortuitously
planned shelf registration statement facilitated the fast response.

Ocean Power will take in about $1.6 million in net proceeds after
the investment bankers get paid.  This is not a large offering,
but just enough to top off the bank account without diluting current
shareholders more than necessary.  Management appears to have
the view that, even after the dramatic price increase, the shares
still do not reflect the long-term earnings potential in Ocean
Power’s technology.

Mitsui is leasing the PB3
PowerBuoy
which has the capacity to generate 350 watts of
continuous power.  The structure floats on the ocean surface
from a tethered attached to the ocean floor. As the wave move the
direct drive generator, the electrical charge is stored in an
on-board battery pack.  Power can be delivered to a nearby
marine installation such as an off-shore oil rig or to coastal
installations such as a communications network.


Ocean Power expects more to develop in its relationship with Mitsui
Engineering & Shipbuilding.  Mitsui is among the largest
construction companies in the world, with interests in energy and
environmental projects as well as shipbuilding and infrastructure
construction.  Mitsui is expected to be a strong advocate for
the PowerBuoy if it begins designing the ocean-based power
source into its assignments.  Mitsui has recently been trusted
to address customer problems in a wide range of projects involving
underwater inspection, marine position keeping and deep-sea remote
observation.

Indeed, the range of potential applications that Ocean Power sees
for the PowerBuoy is as wide as Mitsui’s business
interests.  In a recent investor presentation, management
outlined multiple addressable markets:  ocean observing,
communications, off-shore oil and gas installations, and off-shore
wind energy projects.  Likely, the new capital going into Ocean
Power’s bank account this week, will be used to reach customers in
these markets.

It was impressive that Ocean Power was able to take in capital at a
strong price  –  at least from the corporate
perspective.  However, one lease to Mitsui  –  and it
is a lease, not an outright sale  –  may not be sufficient
to support the current price.  Effective execution on market
penetration will be the key for OPTT valuation.  It is then
important that Mitsui fulfills the promise so many have placed in
that relationship  – bringing in a big catch of fish for Ocean
Power.

Debra Fiakas is the Managing
Director of
Crystal Equity
Research
, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein. 

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