"To me the sea is a continual miracle;
The fishes that swim, the rocks,
the motion of the waves, the ships with men in them.
What stranger miracles are there?"
Walt Whitman
For Ocean Power
Technologies (OPTT: Nasdaq)
the sea is more a utility than Whitman’s source of romantic miracles. The company has developed a wave turbine to
capture the energy in ocean waves and turn it into electrical power. Last month the company was successful in convincing
investors of the merits of its ‘ocean utility’ technology, raising $8.2 million
through the sale of common stock.
Branded as the ‘PowerBuoy’, Ocean Power’s product line
is headed by its PB3 system that has
the capacity to generate up to three kilowatts of peak power. An onboard power storage system has the
capacity to store up to 150 kilowatt hours.
The PB3 is intended for users with remote off-shore installations such
as ocean observatories, oil and gas wells, or communications systems. Currently oil and gas companies or scientific
groups rely on a mix of power sources to power remotely located systems, such
as batteries, gas generators, solar panels, or fuel cells.
The Ocean Power management thinks they have a good pitch to tell customers. Each of the established power sources has
limitations, such as reliability, short length of service or high cost. Ocean Power has been working on reducing the production
costs of its PB3 system so that it
offers a low cost of operation over a longer useful life. The PB3
also offers remote, real-time communication capability so that operators can
gain access to vital data gathered at its systems site without having to make
an expensive, time consumer trip. The PowerBuoy is also more easily deployed
with conventional ocean going equipment.
The extra
capital puts Ocean Power in a better position to move aggressively on its
target markets and finally achieve profitability. Aside from a few development contracts with
the U.S. government, the company has not yet recorded revenue from the sale of
its PowerBuoys. At the end of July 2017, Ocean Power reported
cash balances of $11.4 million after having used $4.2 million to support
operations for the previous three months.
Based on that pace in spending, it is estimated that the company now has
approximately $15.0 million in cash to support operations.
Ocean Power
already has a number of relationships that can be translated into customers,
drawing first from a string of development partners and equipment testers. Indeed, at the end of July 2017, there was backlog
of $100,000 in fully funded orders.
Discussion of
Ocean Power in terms of backlog represents a seminal change for its
investors. The company has successfully
proven its technology and has now moved on to the next challenge - proving
competitive vigor in its end markets. The
shift in focus can also be observed in operating expenses reported for the
quarter ending July 2017. Total expenses
declined to $2.8 million compared to $3.1 million in the same quarter of the
previous year, with the decrease attributed to a 33% reduction in spending on
product development. Selling, general
and administrative expenses increased by 8%.
Unfortunately,
Ocean Power’s backlog is composed only of government-sponsored development contracts. It does not yet hold a contract for the sale
of a PowerBuoy.
It might be the
conundrum over backlog that has made it difficult for investor to form a view
on Ocean Power. The offering was met
with considerable enthusiasm, driving the stock price to a high of $2.54 on the offering
day before it closed at $2.00. Since then
the stock has struggled, falling back down below its 50-day moving average
price. At the present price level, the
stock would seem to be a bargain for investors who accept the potential in
ocean power and have confidence in Ocean Power management to execute on a
winning market strategy.
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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