Friday, December 06, 2013

ZBB Energy: A Piece of Pie

There are a lot of different technologies in the energy storage space.  ZBB Energy (ZBB:  NYSE) has staked its future on zinc bromide.  Batteries using zinc-bromide consist of a zinc negative electrode and a bromine positive electrode with a porous separator in between them.  Unlike conventional batteries, these electrodes do not take part in the reactions but merely serve as substrates for the energy reactions.  Thus there is no loss of performance from repeated cycling causing electrode material deterioration.  The zinc-bromine battery can provide two to three times the energy density of lead/acid batteries.

Excellent energy density and long life make zinc-bromide batteries particularly attractive as storage for wind or solar power generation systems.  ZBB has taken its batteries to a higher level, configuring its batteries in to power plant systems. 

ZBB has developed a clutch of energy storage and power control products.  Besides its energy storage devices, the company provides controller technology for hybrid motor vehicles systems.  A number of markets are ZBB’s sights:  micro-grids, commercial building back-up power, power solutions in remote locations, electric vehicles charging are just a few applications.

The company generated $7.0 million in sales in the last twelve months.  Admittedly, that is a small number.  However, recent sales have ramped dramatically over the past three years, suggesting ZBB is gaining traction in the market place.  Losses are still deep  -  net loss in the last twelve months was $11.6 million.  Building market share should cover those losses in time.

The problem is that ZBB might not have enough cash on its balance sheet to support the company to the point that sales cover expenses.  The company used $6.5 million in cash for operations over the last twelve months, but only has $3.1 million in cash on its balance sheet.  That bit of cash comes from a bridge financing the company completed in late September 2013.  If operations continue to use cash at the same pace, it is likely that half of that money will be gone before the year is over.

With cash resources stretched thin, it is not surprising that the stock is trading near a 52-week low.  On the plus size the nominal price near $0.60 means a long position in ZBB has a price tag more like an option.  The energy storage market is just developing and it appears ZBB Energy has a chance to grab a piece of the pie.


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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