Ballard Power Systems: A Turnaround Is a Possibility

Ballard Power Systems (BLDP) had reported disappointing numbers in the second quarter as both its top and bottom lines fell on a year-over-year basis. This was mainly driven by the business loss in its high margin Technology Solutions segment, as it terminated contracts with Azure Hydrogen, China; along with a shift in revenue from the engineering services contract with Volkswagen AG. As a result of these headwinds, its shares have dropped 70% in the past one year. But, there is more to Ballard as we will now see.

A weak quarter but positive prospects

Its revenue for the quarter fell 39% from a year ago to $11.2 million, while losses adjusted for one-time items widened to 5 cents a share as compared to a loss of 3 cents in the same period last year.

Analysts were expecting a loss of 6 cents per share on revenue of $16.1 million. Hence, the company missed the top line estimate by a big margin, though its bottom line was better.

But, the good thing is that Ballard is making strong moves on a global platform to increase its reach internationally. Specifically, in China, Ballard has entered into a number of agreements with various companies that will bolster its business in the days to come. For instance, Ballard recently signed an agreement with Tangshan Railway Vehicle for the development of fuel cell modules to power trams in China. In addition, it also signed a $10 million deal with Nantong Zehe and Guangdong Synergy under which it will power 33 clean energy buses in two Chinese towns.

A smart acquisition

Apart from this, Ballard is also expanding its business inorganically and has decided to acquire Protonex Technology Corporation, a designer and manufacturer of advanced power management products and portable fuel cell solutions. The deal will enable Ballard to diversify its product portfolio into power management capabilities. Protonex has various power management products for military use, which are finding extensive use in applications because of some of their special attributes.

For example, Protonex's power management products facilitate soldiers' ability to power various key communication and navigation tools from a wide variety of power sources including solar, vehicles, and fuel cells. This greatly increases the mobility and flexibility of soldiers, making them more efficient and reducing the need for fuel and battery transport.

According to Paul Osenar, President and Chief Executive Officer of Protonex Technology Corporation, "We believe that fuel cell products will play a growing role in power generation for the military, particularly given their low noise and low heat signatures." Therefore, this transaction opens new doors for Ballard.

Additionally, over the past three years, Protonex has reported a compound annual growth rate in revenue of approximately 22%, and anticipates further growth in 2015 and 2016. Thus, Ballard seems to have made the right move and this acquisition should enhance its overall growth profile. More importantly, Protonex has a high margin business that should help Ballard achieve break-even in the long run.


These are positive developments around the company, but at the same time, we cannot neglect the headwinds it is facing. Moreover, its ratios are also disappointing with a P/S multiple of 2.9, which is more than double the industry average of 1, indicating that the stock is overvalued at current levels. However, despite being expensive, Ballard has got strong prospects and has made smart moves to improve its growth profile. Therefore, investors should keep this stock in their watch list and contemplate an investment due to robust long-term potential.

Published on Aug 28, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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