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Three public companies end
our series on wave and tidal power development. Marine and
HydroKinetic energy has only recently received enough interest from
scientists and engineers to merit an acronym – MHK. It
is an all-encompassing category, stretching across ocean tides and
waves and reaching into the currents of inland rivers and
straights. It is separated from hydropower, which involves the
construction of dams to create elevation differences in water levels
that can be used to turn turbines.
Still this promising source of renewable energy is populated mostly
by small, private companies that survive on government grants and
investments from family and friends. A few angel investors
have also found their way to MHK, but minority investors have few
Nasdaq) has been previously featured in our articles. The post
Powers Up the Big Apple’ on June 26, 2015, described the
company’s success in getting permits to place one of its power buoys
of the coast southeast of New York City. In January 2016, the
company announced the achievement of milestones in the project,
including a generation record of 32 kilowatt hours for a twenty-four
hour period. Most importantly the system is still working
despite extreme ocean conditions since deployment in October 2015.
In the twelve months ending October 2015, Ocean Power managed to
earn $1.4 million in total sales, mostly from engineering work on
development projects. Of course, still in a developmental
stage, Ocean Power reported a deep net loss of $12.7 million.
The company used $12.1 million in cash to support operations during
this period, leaving $10.4 million in the bank at the end of October
last year. As much as half of that is probably gone, unless
management found a way to bring in more revenue or cut costs.
Indeed, in January 2016, the company received $1.7 million from the
State of New Jersey in the form of business tax credits.
Carnegie Wave Energy Ltd.
(CWGYF: OTC/PK or CWE.ASX)
is another public company option on wave energy. The company
has patented a novel design for an underwater device that captures
energy from ocean current movements. The device is tethered to
the ocean floor and remains below the ocean surface. The
company has spent over $100 million to develop the device and has
completed over 10,000 hours of testing.
That price tag can only be justified by a significant commercial
opportunity. The primary application of the device is to power
desalination plants on-shore, but excess electricity could be
delivered to an electrical grid. Island applications seem to
have merit as well. Carnegie has partnered with
Western Power, an energy utility in Western Australia, to develop a
project at Garden Island. Construction is scheduled to begin
yet in 2016 on six of the wave power devices and a desalination
plant. When completed the Australian Department of Defense has
pledged to buy the power and water supplies.
Both Carnegie and Ocean Power are priced more like options on their
technology than companies with sales and earnings
expectations. For risk averse investors or those with shorter
investment horizons that might be required to see these
developmental stage companies to full commercial operations, there
is an alternative.
Martin (LMT: NYSE) has taken an interest in wave and
tidal power generation. The company has considerable
experience in maritime systems and tidal power apparently does not
seem like a big stretch for its engineers. Lockheed is a
partner of Atlantis
Resources Ltd. (ARL:
LN), which was featured in this
post in February. Atlantis is deploying its proprietary
turbine in the largest tidal power project so far off the coast of
Scotland. Lockheed will be manufacturing the nacelle or the
business component of the Atlantis tidal turbine and supplying the
controls and gearbox. Then Lockheed will serve as the system
integrator and use is considerable balance sheet strength to provide
the required project assurances to the owner.
Make no mistake, LMT is no small-cap company. Lockheed Martin
reported $46.1 billion in total sales in 2015, providing $3.6
billion in net income or $11.46 per share. Of course, a share
of Lockheed is more than a stake in tidal power.
Lockheed is still an aerospace company with additional interests in
communications and security technology and services. Tidal
power at its current state of development is merely a drop in
Lockheed’s very large bucket. Some investors might take
Lockheed’s partnership with Atlantis as a cue, much like the
purchase of shares by an insider. The logic is that a large
company like Lockheed would not bother with a very small company
like Atlantis and its tidal power project, it its engineers and
planners did not see some potential in the sector. It could be
an appealing investment. LMT is trading at 16 times the
consensus earnings estimate for Lockheed in the year 2016. The
stock also offers a dividend yield of 6.6%.
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. Ocean Power
Technologies and Carnegie Wave Power are included in the Ocean
Group of Crystal Equity Research’s Electric Earth Index of
company’s developing power sources from the earth.
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