Company Overview: Bloom Energy Corporation (NYSE: BE) provides electricity generation using solid-oxide fuel cell systems. The company’s on-site The Bloom Energy Server converts low-pressure natural gas or biogas into electricity without combustion resulting in clean emission with low or no CO2, and virtually no NOx or SOx emissions. Its 800kW microgrid provides always-on electricity to Elementary School, Library, Senior Center & Health Center and local gas station and grocery stores. Bloom Energy has deployed 89 microgrids across the US, Japan, India, and South Korea.

BE Details

Shift to Hydrogen Energy to Cut Product Costs: Bloom Energy Corporation intends to achieve clean energy through carbon capture technology and use of hydrogen as a base load. It currently utilizes natural gas, nuclear energy, renewables, and biogas (partly) to power microgrids for electricity to commercial establishments. The company plans to ramp-up to cater EV charging and marine shipping.

BE plans to demonstrate Carbon Capture, Utilisation and Storage technology (CCUS) in 2021, and achieve deployment of biogas from waste resources. The company intends to grow at an annualized rate of 25%-30% in the next five years through hydrogen platform with potential capacity of 1GW by 2025. The total addressable market for hydrogen is expected at $300 billion. BE won 1.8MW proposal in South Korea and the delivery may start in 2021. The biogas production has seen an increase of over 10x in the past 20 years and the market size is expected to reach $45 billion. BE is delivering its first biogas project to California Bioenergy. With CCUS and hydrogen, BE is set to become zero or negative CO2.

Figure 1. Near-term Initiatives and Growth Plans:

Source: Company reports

BE aims to bring down cost of product through strategic partnership and operational advancements such as pre-assembled, skid-mounted product to simplify the installation process. Till now, the company has been able to achieve 10-15% annual cost reduction. Its total product costs declined sequentially from $5,886 in 2015 to $2,420 in Q3 FY20. Bloom Energy is in the process of deploying Bloom 7.5 technology that delivers higher output (of 750 KW from currently 500 KW with Bloom 5.0) and increase module life beyond 6 years (vs. 5 years from Bloom 5.0). The new technology significantly reduces unit costs per output.

As per the roadmap, BE is set to ramp-up in the US market to cater to 50 states by 2025 through adaption to biogas and hydrogen. The company also delivers power solutions to the marine industry by replacing oil-based power generation on large cargos with high-efficient solid oxide fuel cells which are expected to cut emission by ~45% in ships. The company has backlog of over 300MW in the shipping business. It had forged a coalition with Samsung Heavy Industries for this purpose.

Figure 2. Broad Road Map for Growth:  

Source: Company reports

Historical Financial Trend:

BE is set to continue to expand internationally. It plans to foray into the UK and Canada. The company’s international sales reached 33% of total sales in Q3 FY20 as compared to 14% pre-IPO dated July 2018. Strong order backlog and international expansion resulted in robust topline growth. The company continues to invest in R&D and advanced manufacturing technologies to bring down installation cost and product cost. The company is transforming from 12 cents/ kWh to 9 cents/ kWh through advancement in modules, forging new partnerships (contract manufacturing) and operational efficiencies. The company has increased fleet base with Bloom 5.0 modules replacing Bloom 2.0-2.5 technology which resulted in reduction in power module costs by 61% over 2012.

Figure 3. Four-Year Financial Trend of Bloom Energy Corporation:

Source: Company reports

BE roped new customers and net bookings showed momentum in the second half of FY20. Total backlogs increased to $4.4 billion in FY20, up from $4.3 billion in FY19. South Korea market and the recent bid from SK Engineering and Construction represent the strong order pipeline. Revenue grew by 1.1% in FY20 led by services and installation revenue. Of the total backlogs, $3.4 billion were from services. Services revenue represents installation of modules and O&M. BE is focused on reducing product and installation costs. Even with lower selling price ($4,776 in FY20 vs. $5,597 in FY19), the company made upfront gross margin of 28.3% (vs. 23.8% in FY19) led by decline in product and installation costs. Increase in R&D spend and initiatives such as customer financing program and debt restructuring costs resulting in higher general and administrative expenses. Nevertheless, adjusted EBITDA showed improvement over the previous year.

Figure 4. Key Financial Highlights of Q4 FY20 and FY20:

Source: Company reports

Operating cash outflow narrowed to $98.7 million in FY20 due to improved EBITDA and lower financing costs. Cash balance improved to $416.7 million as of December 2020. Total debt decreased to $527.1 million led by primarily reduction in recourse debt. It should be mentioned that the company eliminated high-cost and short-term debt through issuance of $230 million green bonds in Q3 FY20.

Figure 5. Key Financial Position:

Source: Company reports

Top 10 Shareholders: The top 10 shareholders together form ~38.92% of the total shareholding. Columbia Threadneedle Investments (US), The Vanguard Group, Inc. are holding a maximum stake in the company at 9.32% and 7.87%, respectively.

Figure 6. Top 10 Shareholders

Key Metrics: BE exhibited strong revenue growth aided by order backlogs, foray into marine industry, widening geographic reach and continued investment in Bloom Server. The company started to report positive gross profit in the last three years driven by scale economies and partnership programs for contract manufacturing. Its cash cycle days showing improved trend but reversed in FY20 reflecting delay in collection by customers owing to the pandemic.

Figure 7. Key Financial Metrics

Outlook: BE is targeting Non-GAAP gross margins at ~30% in FY2025 through advancement in module manufacturing (product margin to maintain at 40%), fleet optimization and reducing replacement costs, and streamlining installation process through tie-ups. Migration to Bloom 7.5 and adaption to hydrogen may push-up R&D expenses to reach ~8% of revenues by 2025. BE is expecting revenue to grow an annualized 20-25% through 2025. The company is building additional manufacturing capacity to support 2022 growth. For FY21, BE is projecting revenue in the range of $950 million to $1 billion. Non-GAAP gross margin at ~25% and non-GAAP operating margin at ~3%. The management is expecting cash flow from operations to turn positive in FY21.

Key Risks: The on-site distributed energy generation is new to the market vis-à-vis traditional centralized electricity generation. The new technology may be unproven and fear of not being stable may affect new customer additions. Bloom Energy Corporation has limited operating history (about 10 years since operational in 2009) and reported net losses sequentially. With higher manufacturing costs, the company may take time to reach break-even (at PAT level). Regulatory changes in net metering charges, utility tariffs, and interconnection arrangements may adversely affect pricing and margin.  The company derives revenues from order backlogs, any delay in customer payments (particularly in PPA mode) and deployment of contracts may affect revenues.

BE Monthly Technical Chart

Note: Yellow color line indicates trend-line while purple color line depicts RSI Levels. Green lines are indicating monthly volumes. (Source: Refinitiv, Thomson Reuters)

BE stock prices are trading in a primary upward direction. Prices broke the downward trendline resistance of $28.62 in December 2020 and made a fresh high of $44.95 after taking support of the downward trendline. However, the prices took sharp correction from higher levels in February 2021 and are currently trading near its immediate support level of $27.00. RSI(14) is hovering at ~56 which is supportive of the future positive price action. Decreasing volume along with decline in prices may restrain further correction in the prices. 

Valuation Methodology: Enterprise Value to Sales Multiple Based Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: BE has delivered 3-month and 6-month returns of 29.62% and ~75.15%, respectively. The stock is trading above the average of the 52-week high price of $44.95 and 52-week low price of $3.00. On the technical front, the stock has a support level of ~US$27.13 and a resistance level of ~US$42.61 We have valued the stock using EV to Sales multiple-based illustrative relative valuation method and have arrived at a target price of low double digit-upside. We believe that the stock might trade at a slight premium as compared to its peer median EV/Sales (NTM Trading multiple) given the commitment in clean energy with a focus in hydrogen and deployment of Carbon Capture, Utilization and Storage technology in 2021. The company is investing in fuel cells and electrolysers to transform into hydrogen platform with potential capacity of 1GW by 2025. For this purpose, we have taken peers like EnerSys (NYSE: ENS), Sunworks Inc (NASDAQ: SUNW), Flux Power Holdings Inc. (NASDQ: FLUX). Considering the rapidly growing revenues, strong order backlogs, adequate liquidity, we give a “Buy” recommendation on the stock at the current market price of US$28.62, down by 10.67% on February 22, 2021.

BE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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