Lightning Analysis - CFU - Ceramic Fuel Cells

(Source: http://ozstock.blogspot.com)


Ceramic Fuel Cells develops electric generator power units based on Fuel Cells technology. Fuel cell itself is a relatively new technology which is supposed to be low emission and highly efficient compared to conventional generators. Scientifically, a fuel cell converts chemical reaction energy into electricity. This is similar in principle to batteries but fuel cell requires an external source of fuel. The fuel can be hydrogen or in CFU's case, they natural gas. Previously fuel cells are not economical to use en masse hence they are only found in special applications, including space flights. But CFU is suppose to develop economical industrial fuels cell generators that can be used for homes and buildings.

Reading about the CFU company gives the impression that it not only has a breakthrough technology which is addresses climate change and global warming, it is also on he verge of mass producing the fuel cells and has large international client orders from Germany and the UK in addition to Australia. Its manufacturing plant is located in Germany, which is from where production units will roll off.

CFU has a respectable relation with European countries like Germany and UK, which are serious in tackling the climate change problem. CFU has received research grants and financial incentives from Germany and received benefits from UK government feed in tariffs. The German plant opened in Oct 2009, is ramping up production in preparing for large volume sales in 2010 onwards.

The CFU story looks very rosy indeed, but trying to analyse its financials is a totally different story. Firstly CFU booked a massive loss of over $42m (2009) compared to $24m (2008). The 2008 loss was large enough but in 2009, CFU booked an extra $27 impairment loss from investments. No further details are given in the annual report but from news media a few months back, some may recall the boss of CFU talking about suing an investment company that invested a large amount of CFU's money into Sub-Prime investments.

In this blog, there are two strategy to analyse companies in the fundamental sense.
i) For established industrial companies, we look at a few financial ratios, eg debt level; the Warren Buffet formula and Lincoln indicators.
http://ozstock.blogspot.com/2009/07/warren-buffets-1981-formula-for-quick.html
http://ozstock.blogspot.com/2008/11/fundamental-analysis-ratios-formula.html
http://ozstock.blogspot.com/2008/07/9-golden-rules-according-to-lincoln.html

ii) For Biotech companies, ozstock has developed a set of biotech metrics to sift out potential winners.
http://ozstock.blogspot.com/2007/01/biotech-valuation-indices.html

CFU however, is still a startup, ie. massive losses, hence cannot be evaluated using method i). Although CFU is a startup, it does not have the biotech metrics such as clinical trials to judge the effectiveness and milestones of the product. Because of this CFU is purely a speculative play.

A few other things to note about CFU financially:
1) The massive $23m extra impairment loss stands out like a sore thumb. On the bright side, it is only for the one year, we hope. On the darker side, CFU is involved in a law suit concerning this loss. My opinion is that they cannot win the law suit, and need to pay the legal cost.
2) Recent cash flow is actually not that bad at $1.4m operational outflow with remaining $24m cash. The last 2 quarters had a loss of $4.88m combined. However, annual cash flow over the last two years were a massive $17 and $20m, with slight improvement in the last year.
3) Last two years, CFU was able to raise $32m and $15m, showing an ability to raise cash, especially when it seems like its technology is very well regarded in Europe.
4) On the balance sheet, it appears to have no debt. Majority of assets are cash($25m) and Plant and Equipment($20m) with very little intangible assets. This seems like a strong position.

From a technical analysis standpoint:
i) The Relative Strength (RSI 14) looks like its bordering on the oversold side, so could turn up.
ii) The Stochastic Oscillator is at almost 0, and may signal a buy when it moves strongly into positive territory.
iii) MACD is way under zero and thus indicates an oversold condition. For this to signal a buy, the MACD must have moved strongly across the signal line.
iV) The price itself seem to have found temporary support at 16c after falling from a tight range at 25c.

Summary
Fundamentally it is worth a punt, not only because of promising technology but also a strong balance sheet. Its past financial history however suggest extreme caution.
Technically it  has been oversold recently. The wait is for it to confirm the support or break through to lower levels.

Technical Analysis - All Ords Double Top, Dow faces Gann Resistance

All Ords Double Top - Dow faces Gann Resistance

This is very exciting times, not because of my investing position, but because of what's coming ahead. I will explain why it is time to go short. But before that, I'll candidly reveal that for the past 2 weeks I went long thinking that the correction was minor and will turn upwards as we have seen previously over the last few months. So that was my mistake, not too costly if I get out soon, because the pattern after just last week is almost a classic double top setup.

Anyone who has been following David Bowden or Gann's techniques realise the double top or double bottoms are among the easiest signals to trade because a few things need to occur before we can conclude the double tops or bottoms.

The Aussie All Ords has just form a double top at the end of last week, in fact it is on the down-leg. The double top setup consist of the first top, around early October, then hit a low around November and climbed to a top in early January. Since then it has declined with full force and the current position is slightly lower than the tip of the double top. This shows the second top has a down leg which has broken an important support position. If this double top is like most others, given current position, the only way is an emphatic downward move. If it goes a little further to break the brown Gann angle support, then it will go down further.

Interestingly, the Dow Index does not show a double top. What it does show is that it had just broken back down the Gann-5 angle. Not too long ago, the Dow powered upwards and broke the Gann-5 angle, but that was short lived. It then reversed and came down to break the Gann-5 angle and now it seems the Gann-5 has become a strong resistance. Although we should wait a while, and Gann himself would suggest we wait, the trend is now on the downwards.

So to play safe, we can wait a week or so to have confirmation of a major correction to come. Those who have the risk appetite may choose to go in soon.

Analysis - POH - Phosphagenics Limited

Source: http://ozstock.blogspot.com

Summary Metrics:
Price($)        0.07
NTA ($)        0.02
P/NTA        4.4
Team        6.1
BurnPeriod      2.45 / half year
ProductPipe     11.1
ForeignMarket   2.5
Cash:Debt       Debt Free


Opinion: Buy up to 12c.

Discussion:
In POH's own words, the company does "Production, sale and licensing of products for the nutraceutical and  pharmaceutical industries."

POH is different from other biotech startups in a few ways. Firstly, it is not a developing any block buster drug that cures diseases. Instead it develops and owns technologies for drug delivery that are Transdermal, Dermal and Oral (Phospha E, TPM). Secondly it reports every half year which differs from the majority of biotech which reports quarterly.

It has at least 2 products in Phase II, several more in Phase I and more in Preclinical. This lead to a very high Product Pipe score of 11.1 where a score of 5 or 6 is regarded quite good. It had sign agreements with local biotechs such as CSL and Metabolics. In Nov 2009, it announced the launch of an anti-aging product by its US partner which uses POH's TPM delivering technology.

In terms of Foreign markets, POH demonstrated penetration into the US market. It has deals with at least one major US company, and an office in the US. However, there seems to be no other foreign market associations than the US hence its relatively low Foreign Market score of 2.5

POH has a solid management team as shown by the high score of 6.1. In such biotechs, a higher score is placed on scientific qualifications of the directors. In POH's case, an additional positive fact is that the management / directors team seem to be quite stable with little turnaround over the last 3 years.

In terms of financials, POH is debt free for the last 3 years. It has a very high Intangible Assets, however this is to be expected from the nature of business of POH. The Price to NTA is a little over the comfort zone, coming in at 4.4, but the other positive factors outweigh the high price ratio. Its burn period of 2.45 / half year means a survival time of about 1.5 years. But note that this number is currently based on the half year cash flow results. Looking at the previous years record, the full year (annual) cash burn rate seems to be lower than this, hence its burn rate is not too bad.

From a technical point of view, over the last year, POH has peaked at about 19c in April 2009 but since then has plummetted to current levels. It has been steady above 6c for more than two months and is showing a slight tendency of an upward trend. If the 6c level might be the support level which marks the beginning of accumulation in the stock.

Fundamentally and technically it appears that the future of POH is on the way up.