Nanalyze

A Wind Power IPO from Northern Power Systems

Wind power has been one of the fastest-growing sources of electricity generation over the past decade with global capacity increasing tenfold.

Wind_Power_Capacity

Source: Global Wind Energy Council

For investors looking for exposure to wind power, bigger companies have typically dominated the space. Siemens is the market leader in offshore wind turbines. Danish company Vestas has more than 43,000 turbines installed in 66 countries. GE Energy’s 1.5MW turbine is the world’s most widely-deployed wind turbine, with more than 16,000 installed around the globe. Although small-cap pure play companies are hard to come by, one micro-cap company, Northern Power Systems (TSE:NPS), recently filed for an IPO on the Nasdaq Capital Market. (All numbers below are in USD).

Northern Power Systems targets the small wind subset of the distributed wind market, which commonly consists of turbines with rated capacities of 500 kW output or smaller. This 129 employee company is based out of Vermont in the U.S and recently started trading on the Toronto Stock Exchange (TSX) in April 2014 under the ticker symbol “NPS.” Since the TSX debut, shares have lost about -40% of their value giving the company a market cap of just $35.7 million. While share price performance has been unimpressive, revenue growth for NPS has been anything but.

While 2013 revenues of $15.8 million were well above the $13.7 million in revenues for 2012, 2014 was a stellar year for NPS. For the first 9 months of 2014, NPS brought in $31.3 million in revenues, already twice the revenues of 2013. 88% of these revenues came from international customers. More impressively, NPS managed to achieve EBITDA profitability in Q3 2014 of $417,000 compared to a loss of $1.8 million in the third quarter of 2013. As of September 30, 2014, NPS had $13.6 million in cash on hand and an order backlog of $39 million.

NPS’s turbines utilize their proprietary Permanent Magnet Direct Drive (PM/DD) generators which offer high-efficiency energy conversion, are lighter, and have significantly lower maintenance costs than traditional gearbox designs. Since releasing their second generation 60 kW and 100 kW PMDD wind turbines in late 2008, they have shipped over 400 units.

However, revenues may experience a slowdown in the next few quarters. NPS noted in their S-1 filing that their single supplier who sourced their blades ceased operations in November 2014. While they worked with the supplier to restart the operation, they anticipate “some blades will not be delivered in the near term on a timely basis, which will have an adverse effect on our revenues for the quarters ending December 31, 2014, and March 31, 2015“. This hopefully temporary slowdown in revenue growth may provide potential investors with a compelling entry point.

The recent drop in  Northern Power Systems’ (TSE:NPS) share price of around -22% is merited since issuing new shares will dilute existing shareholders. However with the current crash in oil prices making alternative energy investors a bit skittish, should NFS successfully raise $30 million at a decent valuation in their IPO offering, this would demonstrate a strong vote of confidence from institutional investors in their business. The number of shares to be offered and the price range for the offering have not been determined.

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