Quick Updates on Finavera Wind Energy and Kandi Technologies

October 2, 2012 by  
Filed under Green Energy News

October is starting off with a bang for the clean energy stocks I follow.  There were two significant announcements this morning, one with good news just getting better, and another making the best out of a bad situation.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) is making the best of a bad situation by putting itself up for sale.   This makes sense for small wind farm developers, they are asset rich and cash poor.  Banks have been very reluctant to lend to small asset developers, and so these companies are trading at a small fraction of the value of their assets.

Regular readers will be familiar with the story of another wind developer, Western Wind Energy (TSX-V:WND, OTC:WNDEF), which recently put itself up for sale as the result of pressure from a hedge fund.  WND has more than doubled (from C$1.19 to C$2.45) in the two months since the announcement, and the company’s CEO expects a sale price of between C$3.75 and C$4.50 a share.  I personally think the eventual sale price will be closer to C$3, but that remains a healthy return for shareholders in just a few months.

Finavera’s CEO, Jason Bak, also claims that part of his stock’s problem has been hedge funds.  He said,

Ever since the award of our Electricity Purchase Agreements from B.C. Hydro in 2010, where we were the largest winner of wind power contracts in British Columbia’s history, we have focused on finding the optimal partner to unlock the value of the $2.5 Billion in contracted payments to Finavera Wind Energy.  During this time we have dealt with adverse market conditions and short term hedge funds that have punitively sold stock against the interest of the long term shareholder.  This has resulted in a significant difference between our market capitalization and our inherent value.  We are optimistic that a corporate transaction will provide a solution where shareholders are part of a stronger platform to access the value of these assets and realize upside from the current Company capitalization.

If the results for Finavera are similar to those of Western Wind, we can expect the stock to rally for a few months as the sale process proceeds, perhaps reaching C$0.50 in early December, with an eventual sale somewhere above that level.

Kandi Technologies (NASD:KNDI) said “Here’s the beef!”   Ever since July, when I wrote about Kandi’s deal to sell 20,000 mini-electric vehicles (EVs) to a leasing program in the Chinese city of Hangzhou, the company’s detractors have been harping on the fact that this deal was simply a “Letter of Intent” (LOI) and not legally binding.   This morning, Kandi put those concerns to rest, with a signed sales contract for 5,000 mini-EVs to be delivered in between now and the end of the year.

This contract is good news in a second way as well.  The LOI had only envisioned 4,000 vehicles being delivered by December, so this announcement also shows that the time frame is accelerating.   The price for the 5,000 vehicles will be RMB 199,000,000 (approximately US$31,587,301 or $1.06 per share), or 277% of the Kandi’s entire revenue in Q4 2011.

When I first wrote about the Hangzhou deal, KNDI was trading near $3.  It has risen fairly rapidly since then as details of the Hangzhou deal come out, and also as a result of a much bigger deal  in Shandong province announced in late July, as well as prospects for a 100,000 vehicle EV Hangzhou rental program in addition to the 20,000 vehicle leasing program  discussed above.  As I write, KNDI is trading at $4.50, and it would have been much higher except for a rambling and article last Thursday on Seeking Alpha, which claimed to “connect the dots” on related party transactions within the company, as well as dragging out the usual critique that Kandi does not yet have a viable EV business.

Rational investors like to buy a stock before all the good news comes out, so the critique that Kandi does not have significant past EV business seems irrelevant to the typical forward looking investor.  As for the related party transactions, investors who have been following Kandi closely for several years tell me that these transactions have long been disclosed, and while I found the article hard to follow, I did not see anything which made me believe that company insiders were using related party transactions to drain money from the company.  The theory that the article was simply an attempt to manipulate the stock lower and allow a short to get out (the author was short) makes the most sense to me.

On the bright side, the scare from Thursday’s article gave me a chance to pick up a trading position at $3.50 and sell it on Friday for $4.40.  I would have held on and added those shares to my long term position If I had known about the news which would be coming out this morning.

Disclosure: Long FVR, WND, KNDI

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