Tony Featherstone Columnist

Tony is a former managing editor of BRW, Shares, Personal Investor, Asset and CFO magazines. He writes a weekly column for BRW and The Australian Financial Review, specialising in small listed companies,IPOs, entrepreneurship and innovation.

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Clean tech not all a wreck

Published 10 September 2012 06:44, Updated 13 September 2012 05:02

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Clean tech not all a wreck

With the carbon price introduced, the sharemarket stabilising and speculative resource stocks out of favour, the clean technology sector should start to attract more investor attention. Photo: Mark Dadswell

Clean technology stocks have suffered an almighty belting in the past few years. The Australian CleanTech Index hit an all-time low in early July, when the carbon price was introduced. Ironies aside, speculators might find more opportunities in a listed clean technology sector that has been heavily oversold.

They will need conviction. The index, a measure of 72 clean technology stocks, has badly underperformed. Over three years it has shed 55 per cent, compared to a 4 per cent drop in the S&P/ASX 200 index. The top 20 clean technology stocks have fared even worse.

Over the past six months the index has tumbled 20 per cent. So much for the carbon price creating more interest in companies developing and commercialising clean energy technologies. Like other speculative, pre-revenue companies, smaller clean technology stocks were among the first dumped during market corrections.

The good news is the Australian CleanTech Index jumped 6.1 per cent in August and trumped a 1.1 per cent gain in the S&P/ASX 200 index and a 3 per cent gain in the Small Ordinaries index.

But a one-month gain is no trend. More sharemarket volatility could easily see the sector hit new lows. However, the contrarian in me always searches for out-of-favour sectors and stocks that have been dumped more because of market sentiment than fundamental reasons. Several clean technology companies are making excellent progress – not that their share price shows it.

The Australian CleanTech Index outperformed the market in 2006 and 2007 and was level-pegging in mid-2009. As the S&P/ASX 200 index went broadly sideways for three years, the Australian CleanTech Index tumbled to unthinkable levels – from a high of 160 points in July 2007 to 31.2 points five years later.

After this carnage, resolution of a few factors could finally work in the sector’s favour. The fierce political debate and regulatory uncertainty in the lead-up to the carbon price’s introduction clearly hurt sentiment towards clean technology stocks. And the sharemarket sell-off in May stomped on speculative micro-caps.

Mining investment may have also, indirectly, hurt the listed clean technology sector. Why would speculators chase clean technology companies that need years to develop or commercialise technologies, when they could make quick profits chasing the next Africa-focused goldminers?

There were also company-specific problems. Share price losses by Sims Metal Management, Transpacific Industries and Silex Systems hit the Australian CleanTech Index, which is weighted by market capitalisation and heavily influenced by the performance of a handful of stocks.

With the carbon price introduced, the sharemarket stabilising and speculative resource stocks out of favour, the clean technology sector should start to attract more investor attention, given the magnitude of share price falls.

Not every clean technology stock performed poorly. EnviroMission, Sterling Biofuels International, Clean TeQ, Pro-Pac Packaging and Traffic Technologies gained more than 50 per cent in 2011-12, Australian CleanTech reports, albeit from tiny bases and often after heavy earlier falls.

Of course, most ASX-listed clean technology companies are highly speculative. Even the larger ones have more risk compared to other sector leaders. They are not for inexperienced investors or those with low risk tolerance or short investment time frames.

Risks aside, some of the more established stocks have arguably fallen too far. Solar dye maker Dyesol is a good example. Its photovoltaic technology improves energy efficiency for metal, glass and polymeric-based products in the business, transport and other sectors.

Dyesol has made good progress this year raising capital, testing its technology, expanding overseas and winning innovation awards. Yet its share price has slumped from a high of 44¢ to 12¢. The conversion of convertible notes into equity weighed on the share price, and a lack of headline news, often the case for technology developers, frustrated impatient investors.

After three horrendous years, Infigen Energy started to lift in August and seems to be putting more of the problems of its previous owner, the failed Babcock & Brown, behind it. Infigen has interests in 24 wind farms in Australia and the United States.

Infigen’s net operating cash flow increased 25 per cent to $62.1 million in the 2011-12 full-year result, thanks to better capital management and lower financing costs after significant debt repayment. It made a $55 million net loss and has $1.07 billion of group debt. Those metrics are normally a big turn-off, but Infigen’s rising cash flow is worth watching for speculators.

If Infigen can lift production and revenue, it should have more surplus cash flow to pay down debt, reduce financing costs and invest in other opportunities. Infigen is a high-stakes stock but it is all relative in the clean technology sector, and a 28¢ share price is already factoring in plenty of risk.

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