The onset of a new year often brings with it a sense of renewal. It's an innocuous thing really; the simple turning of a page on a calendar. However, it represents something much more than a modest transition from one cyclical period to another. For ages, calendars have represented opportunity, change, and redemption. Throughout history, whether it has been the Sumerian's, the Mayan's, the Greek's, or the Romans, the beginning of a new year has long been associated with the prospect of redefining oneself. This mechanism of evolutionary psychology has remained relevant, and celebrated, well into modern times. In fact, not much has changed today.
People continue to make New Year's resolutions. By the end of December, one regularly overhears peers and co-workers recite the phrase "next year is gonna be my year." Moreover, there is also a sense of relief. Individuals can often be heard exasperatingly stating that they are "so happy the year is ending" due to the fact that "it's been such a terrible year." It's the simple turning of a calendar that makes these people believe that change is impending. It is the unassuming transition from 2013 to 2014 that instills in these people a feeling of hope. In some ways it's sad, yet in other ways it's fantastic. It depends largely on perspective.
The New Year doesn't just present opportunities for individuals however; it also offers a fresh start for businesses. For many, the fiscal year runs congruently with the calendar year, and the first day of January offers an ideal time to launch new ideas, new systems, and new infrastructure. As a result, many companies put into effect new protocols and new standards on the first day of January. The idea being that a new tone, a new direction, and a new set of objectives, begins for the company at the stroke of midnight. One such company, who has big plans for 2014, and a series of changes scheduled for New Year's Day, is Blue Earth Incorporated (OTCQB:BBLU).
Who Is Blue Earth?
Blue Earth is a comprehensive provider of efficient, renewable energy solutions, for small and medium sized, commercial and industrial facilities. The company also owns, manages, and operates independent power generation systems constructed in conjunction with these services.
The turnkey energy solutions offered by Blue Earth enables their customers to reduce, or stabilize, energy related expenditures, and lessen the impact of their energy use on the environment. These services include the development, engineering, construction, operation, and maintenance, of small and medium scale renewable energy power plants, which can be specifically designed for the customer to own. Otherwise, Blue Earth will build, own and operate the power plant for their customer. These plants often utilize energy sources such as solar PV, combined heat and power, or on-site cogeneration and fuel cells.
The company is also expanding its core energy services business, en route to becoming an independent power producer. This will enable Blue Earth to sell the electricity, hot water, heat, and cooling, generated by the power plants that they own. These services will be provided under long-term power purchase agreements, and long-term take or pay contracts to industrial customers. These long term plans, to create sustainable streams of reciprocal revenues and operations, have also enabled Blue Earth to assist in the financing of alternative and renewable energy projects.
Proprietary Technologies
Blue Earth owns two proprietary technologies which currently serve as staples of the company's services and provisions. The first technology owned by Blue Earth is the PeakPower System. This system is a patented, demand response, cloud based technology, which allows remote and wireless monitoring of refrigeration units, lighting and heating services, ventilation, and air conditioning, in facilities such as super markets, food processing centers, restaurants, and drug stores. The highlights of this technology, as are itemized on the Blue Earth website, are as follows;
• Continuous real time measurement and verification which monitors pre-food spoilage and maintenance
• Auditing of temperatures and moisture levels ensuring that food safety standards are continuously complied with
• Comparatively low cost basis which enables small or midsize commercial customers to comfortably afford services
In essence, the PeakPower System allows Blue Earth to provide energy monitoring and control solutions with real-time decision support. This allows the company to protect their customers' assets by preventing costly equipment failures and food product losses.
The second proprietary technology owned by Blue Earth is their patent pending system known as UPStealth. The UPStealth system is an energy efficient, intelligent digital battery backup system, which was designed to power signalized intersections during losses of utility power. It was created to serve as an alternative to lead-acid battery backup systems, enabling Blue Earth to provide its customers with an environmentally friendly product that is completely recyclable. It also has no issues regarding hazardous out-gassing, corrosion, flammable mishaps, or explosive epsiodes.
This system can be engineered in various configurations that allow the intelligent battery to bend around corners and to fit into spaces that cannot be accessed by traditional battery backup systems. Compared to lead-acid battery backup systems, the UPStealth energy power solution's cost of ownership is less, requires less maintenance, performs several years longer, and eliminates costly hazardous disposal issues. The highlights of this technology, as are itemized on the Blue Earth website, are as follows;
• Smart battery management utilizing real-time communication
• Reduced ownership costs, longer life, and fewer maintenance requirements than the alternatives
• Non-explosive, and has zero hazmat issues
• Finance options available for municipalities
• Rapid recharge time, and can be combined with the PeakPower System to better control usage
Blue Earth believes that these two exclusive technologies allow them to further facilitate carrying out their corporate mission, which is as follows;
"We strive to participate in the global movement for a sustainable planet by offering products and services that optimize energy use, reduce harmful environmental emissions and substantially reduce energy costs to our customers."
The New Year and Plans for the Future
With the impending transition to 2014 right around the corner, Blue Earth has an exciting list of upcoming events scheduled to take place. These events are following a recent equity offering completed on November 7, 2013 which raised 12 million dollars in capital for the company. The first of the year will bring with it a series of appointments to the board, as well as the opportunity for a valuable uplisting. The following events are scheduled for January of 2014;
• Governor Bill Richardson, the former Secretary of the Department of Energy, will become a Director of the company effective January 1st
• Michael Allmen, the recently retired former Vice President of Business Development at Sempra Energy (SRE), will become a Director, and Chairman of the Audit Committee, effective January 1st
• James Kelley, a former executive in multiple capacities at Edison International (EIX), will become a Director, and Member of the Audit Committee, effective January 1st
• Blue Earth is scheduled to be uplisted to either the NASDAQ or NYSE in January of 2014
These are significant events for the company, and its further development and growth. However, what Blue Bird appears most excited for is the industry prospects and addressable market expectations moving forward.
On December 9, 2013 Blue Earth announced that they had begun construction work on 13 additional solar PV projects, covered under an engineering, procurement, construction contract, for 27 rooftop installations for schools on the island of Kauai, Hawaii. The additional 13 solar PV power plants, and the 11 solar PV power plants previously announced, are expected to be completed during the first quarter of 2014. The engineering, procurement and construction (EPC) revenue for the 13 sites will generate approximately another 3.1 million dollars, for a combined total of 5.5 million dollars, out of the approximate 6 million dollars in total EPC revenue expected for the company's Solar Hawaii Schools Project.
In an effort to immediately reinvest these projected revenues, in order to further facilitate growth and advancement for the company, Blue Earth announced on December 18, 2013 that they had ordered two generators for two combined heat and power systems scheduled to be operational by quarter three of 2014. The capacity for these two power plants will be about 10.64 MW. Blue Earth will install, own, and operate the systems at two food-processing facilities, selling the thermal and electric power to the host customer, and the local utility, under 20 year power purchase agreements. These two power producing facilities represent about 11% of the expected 100 MW of combined heat and power-generating systems that Blue Earth expects to build, and place into service, between quarter three of 2014, and the first quarter of 2015.
Blue Earth has a very targeted and specific plan, predicated on industry forecasts, which they believe will foster exemplary growth for themselves over the next few years. The company has broken down these plans into three principal areas;
- Independent Power Plants and Power Productivity.
- Solar Engineering, Procurement, and Construction
- Energy Efficiency and Technology
The company further itemizes their expectations in the graphic seen directly below, which represents known revenue streams, such as the 20 year power purchase agreement referenced above, as well as forecasted growth margins and anticipated execution of their current pipeline opportunities.
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These expectations grow congruently with the company's expectation for revenue growth and usage production leading through 2016. It is expected that growth will proceed by a factor of 27 increasing from 14 million annually in 2013, to 380 million in 2016.
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Furthermore, the company's primary customers for combined heat and power systems are food processors. That market segment alone represents a 20 billion dollar market opportunity. The company expects that they could grow from providing 100 mw of power across 7 plants (currently in the preconstruction phase) to providing 337 mw of more power across 28 plants which are currently in the company's pipeline. This would also occur between current day and 2016. The company offers the following schedule and timeline;
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As it pertains to the Solar Engineering, Procurement, and Construction phase of their business, Blue Earth sees the opportunity for tremendous growth. The company currently has a pipeline worth well over 300 million dollars set to be executed and developed leading into 2016. The company has agreements in place with Talesun, New Generation Power, and Nationwide Energy Partners. The Solar Engineering, Procurement, and Construction market is currently estimated to be 12 billion, and is projected to reach 45 billion by 2020.
As it pertains to Energy Efficiency and Technology, this is the segment specifically where the company's proprietary technology truly sets them apart. Blue Earth sees the markets available for its PeakPower System to include the 2.2 billion dollar supermarket industry, as well as the 900,000 nationwide fast food restaurants, and the 55,000 drug stores across the country. In regards to the company's UPStealth technology, Blue Earth sees the addressable markets as including the 2.4 billion dollar market for traffic intersections, the 1.2 billion dollar railroad crossing market, and a series of other smaller battery markets in the healthcare field, such as electric wheelchairs and portable oxygen units. The company forecasts revenue growth through 2016 as follows;
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Blue Earth Financials
For the most recently reported quarter Blue Earth saw its cash position nearly triple from 2012. Cash grew from $659,000 to $1.94 million. As it pertains to total assets, the company grew substantially, from possessing total assets of just under $15 million in 2012, to $77.5 million in 2013. Meanwhile, total liabilities decreased over the same period from $6.7 million to $5.4 million. This cash position, of course, having been reported for the third quarter, did not yet include the $12 million raised in November's equity offering.
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Revenues also grew considerably for Blue Earth during the quarter, however so did the cost of sales, and the general and administrative expenses. The end result was a considerable increase in year-over-year net loss.
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While the company currently maintains a negative EPS, and a substandard operating cash flow, the company's beta is relatively stable at -0.71 and 30% insider ownership indicates that company interests are aligned with shareholders. As the company is principally focused on growth and reinvestment, expenses, costs, and liabilities are expected to outpace revenues and profits for the time being. The Blue Earth story is one of reinvestment and growth, as opposed to profit mongering and value.
Expectations
The Blue Earth story should be an enticing one. Revenue expectations for the upcoming three years are profound, and the company's target based strategies, firm handle on its identity, and recent additions to its board, effective January 1st, are all indicators of significant growth ahead. A sizeable portion of shares held by insiders, a commitment to reinvestment, and patent protected technologies should protect moderately against downside risk. In consideration of growth expectations, current margins, shares outstanding, exercisable warrant values from the recent offering, and projected new revenues from the two plants set for inauguration in quarter three of 2014, Blue Earth appears to have 30% upside over the next twelve months (based on the current pps of $2.58 at the time of this being written). Considerably greater growth between the end of 2014, and the end of 2016, should also be expected. That period should be explosive for the company. As it stands currently though, a 12 month price target for Blue Earth of $3.35 is fair and conservative.
Risks
Unquestionably, the biggest risk involved with an investment into Blue Earth is the highly competitive nature of the alternative energy sector. Companies such as SolarCity (SCTY) and SunPower (SPWR) largely dominate the landscape. In addition, there are multiple emerging entities that stand to compete for the considerably growing market share. Beyond that of course, there are the standard concerns for any company committed to growth. Poor execution of its plan, no matter how unlikely, could be costly and detrimental. Failure to generate the revenues forecasted could send the company's margins out of control. Moreover, failure to execute on the company's robust pipeline of projects could render Blue Earth's commitment to growth obsolete. All of these potential issues are threats to the company moving forward.
Conclusion
The turning of the calendar, from one year to the next, is somehow both innocuous and significant. It means absolutely nothing, yet it represents virtually everything. For Blue Earth, 2014 is a turning point. It is a step towards becoming a company on the same level as SolarCity and SunPower. 2014 is the launching pad for the years that follow. From an investment standpoint, Blue Earth should be very attractive for long term investors who have the patience to support a company's development and growth over multiple years.
The company's metrics leave much to be desired, however in context, given the company's reinvestment and growth objectives, this should be less of a concern and more of an indicator for future development. The momentum which supports growth in the alternative energy and renewable energy sector isn't slowing down. It is only gaining more support. Blue Earth offers the opportunity for basement level entry into a company well poised to grow congruently with the industries unrelenting momentum. Investors would be wise to conduct their own due diligence, and to seriously consider the assumption of a long position into Blue Earth Incorporated.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCQB:BBLU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Additional disclosure: It is advised that all prospective investors complete their own relevant due diligence prior to initiating an investment into any company detailed herein, or on any other web based platform. Also, Blue Earth's beta is reported differently everywhere, and thus the indication herein was the most commonly reported data.
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