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The first two lines of the prospectus for the April 2017 public
stock offering by Ocean
Power Technologies (OPTT:
Nasdaq) say all investors need to know about the market opportunity
for the company’s wave power generation products. First, the
earth’s surface is covered 70% by water. Second, over 40% of
the world’s population lives within 150 miles of a coastline.
If the earth is dominated by water and a good share of our
energy-hungry population lives near that water, doesn’t it make
sense to turn the ocean into a renewable energy source?
If market opportunity based on common sense was all required for a
stock offering, Ocean Power might have been able to sell new shares
nearer its 52-week high price of $15.65 rather than a penny below
the 52-week low of $1.31. In the final trading days leading up
the pricing on April 27th traders paid as much as $3.67 for the
shares. However, underwriters were frightened off, setting the
offer price at a NEW 52-week low.
Perhaps there is more to prove than market opportunity…or market
opportunity is not what it seems.
One question mark could be the company’s flagship technology.
Ocean Power Technology is on the cusp of commercializing a line of
ocean wave conversion systems branded PowerBouy. The PB3
PowerBuoy is intended for use in remote locations off-shore and can
generate up to three kilowatts of peak power. It comes with an
energy storage system that has a 150 kilowatt hour capacity.
As we have noted an earlier article in September 2016, “Navy
Buoys Up Ocean Power Tech”, the U.S. Navy has been an early
and loyal follower. The Navy’s product development grant was
on top of a deal discussed in an earlier article “Ocean
Power Nets A Discerning Buyer” in June 2016, which described a
lease of the PB3 by Mitsui
Engineering and Shipbuilding.
Thus it seems PB3 PowerBuoy is likely a strong product, built on
sound technology and delivering the performance its engineers have
promised. Testing by two high-profile customers provides
strong endorsement. However, the intended applications for the
PB3 in remote locations are a long way from “the 40% of the world
population that lives 150 miles from the coast.” If the intended
market is only in remote locations, market opportunity might not be
as suggested by the opening lines of Ocean Power’s prospectus.
Ocean Power has identified four different types of customers:
oil and gas, defense and security, ocean observing and
communications. The ocean is a busy place and there are
numerous installations in each of the four categories. On the
plus side, potential customers would be easy to identify and target
with marketing and sales campaigns. Ocean Power is even
narrowing its target markets to certain of plum geographies to make
the most of its new capital resources. Then again, demand,
especially in the oil and gas sector, might be subject to periodic
peaks and lows as each customer group contends with own business
cycles. Perhaps most important, the remote location market
will be rife with competing energy solutions, such as solar power,
fuel cells or systems using conventional fuel. Management
contends its solutions will be viewed as a cost-competitive
solution, and this may be necessary to gain a place at the table.
Investors might now be getting a hint as to why the OPTT offer price
was set at a record low level rather than at a high. Even if
market opportunity is not as significant as is implied by the ‘40%
of the population’ opening line of the prospectus, Ocean Power may
still have a place in the hydrokinetic energy industry. The
company will be among few bringing ocean power solutions to remote
installations in those very waters. That should provide some
upside to the $1.30 follow-on offering price.
Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
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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