Clean Air Power: Will Meet 2012 Market Expectations

Clean Air Power (CAP) appears set to meet market expectations for 2012, signifying a year of progress in terms of unit sales and revenue growth. At this early stage, the signs for 2013 appear encouraging and the US market for CAP’s Dual-Fuel™ technology offers the prospect of opportunities for longer-term growth. The current 2013e EV/Sales ratio of 0.9x does not, in our view, reflect this growth opportunity.

Growth evident in 2012
CAP has stated that it expects its full-year results for 2012 to be in line with market expectations based on unit sales of over 300 of its Dual-FuelTM systems (Edison estimates 270-150 OEM units, 120 retrofit and legacy units). The outturn for 2012 marks a significant increase in volume compared to the 70 units sold in 2011.

Promising start to 2013
We forecast continued growth from CAP in 2013, driven by increased sales of both its OEM product and its Genesis-Edge system. Although early days, the signs are promising: CAP’s European OEM partner is increasing production and the company has already delivered 20 Genesis-Edge systems in January.
In the longer term, the company’s strategy of developing a retrofit product in the US, independently of an OEM, helps to avoid some of the potential OEM related delays that can occur. We believe that with a plentiful supply of low-cost shale gas, the market for natural gas vehicles can be expected to grow particularly rapidly in the US, and CAP has stated that there has been “interest shown from a number of major fleet customers”.

Valuation: EV/Sales less than 1.0x 2013 forecasts
Despite the progress made in 2012, CAP continues to trade on an EV/Sales ratio of less than 1.0x based on our forecasts for 2013. Given the potential growth we see for gas-powered engine technology, particularly in the US, and the ratings of comparable companies, some of whom enjoy EV/Sales ratings of just under 3.0x, we believe CAP’s rating is very undemanding.

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