by Debra Fiakas CFA
Blue Sphere (BLSP: OTC) is continuing to make progress in its strategic plans to build and operate biogas power plants. The company is initially targeting the largely untapped supply of organic wastes from food processing and table to meet growing demand for renewable, no– or low-carbon emission energy sources. A year ago, the company’s portfolio consisted of a string of projects all in the planning stage. Management has pushed two food waste-to-energy projects in the U.S.to the construction stage and closed on the first four acquisitions of fully operational agriculture-waste biogas power plants in Italy. This progress has brought Blue Sphere to the cusp of revenue generation.
We estimate the company could record first revenue from its Italy acquisitions in the third fiscal quarter beginning July 2015. All four biogas plants are in operation and sell electricity to the country’s electric grid. Each has a rated capacity of one megawatt power production through anaerobic digestion of agriculture waste to biogas that powers an electric generator. The $1.3 million purchase price for each of the facilities will be paid in two installments. Financing arrangements have been made through an Israel-based investment fund. We expect final closing requirements to be completed by near the end of June 2015. Another three deals are in the pipeline in Italy.
After several challenging months of negotiation Blue Sphere management has arranged financing and commenced construction on a 5.2 megawatt biogas power plant in North Carolina and a similar 3.2 megawatt facility in Rhode Island. The Company has entered into joint ventures with investment fund York Capital, which is funding construction and working capital. Blue Sphere will lay claim to 25% and 22.5% of the North Carolina and Rhode Island joint ventures, respectively. Construction has begun on both projects with completion time within approximately twelve months. We expect both plants to be operational in 2016.
The company is pushing forward with two additional ‘greenstart’ biogas plants. Management is working to secure a power purchase agreement for a 5.2 megawatt plant planned near Middleboro, MA, where local governments are keen on keeping food waste out of landfills. Another waste-to-energy biogas plant is planned near Ramat Chovav, Israel. The project would for the first time give Blue Sphere an operating presence in its home country.
Shares of Blue Sphere traded off in recent weeks, most likely in response to the dilutive impact of note conversions to common stock. Another element frustrating investors may be the joint venture arrangement for the North Carolina and Rhode Island biogas power plant projects that leaves the assets unconsolidated. Shareholders will have to wait until those projects are fully operational to see earnings contributions to Blue Sphere’s financial reports.
On the brighter side, BLSP is trading under dramatically higher volumes than six months ago, suggesting that the market is clearing out share supply underpinning bearish sentiment in the stock. Management clearly thinks the stock is undervalued after instituting a share repurchase plan and engaging a strategic investment advisor.
A report published by Crystal Equity Research published on June 18th, indicated that BLSP is viewed as a speculative security and appropriate only for those investors with the highest tolerance for risk and volatility.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
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. Crystal Equity Research has published research on BLSP with generally favorable commentary. Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.
