Fuel Tech

FTEK

NASDAQ : US$5.69
HOLD  Target: US$6.00

COMPANY DESCRIPTION

Fuel Tech is a leading company engaged in the development, commercialization, and application of proprietary technologies for air pollution control, utility process optimization and advanced engineering services

Sustainability — Energy & Power Technologies

FUELING A FUTURE FOUNDATION; MAINTAIN HOLD, $6.00 TARGET

Investment recommendation

Underlying profitability likely helps keep share price firm here, while we look for improving demand and the intro of new solutions in ’14+. Maintain HOLD, $6.00 target.    Investment highlights  Management’s focus on geographic expansion and product diversification stays firmly intact, supported by a very healthy balance sheet (~$26M net cash). FTEK continues to manage admirably through a difficult domestic environment (2+ years regulatory gridlock, shift towards nat gas generation), as attention turns to a potential Supreme Court decision in the Q3 timeframe.
 Q4 results were lower than expected, as impressive international APC growth could not offset domestic softness (expected to persist into H1/14). FUEL CHEM continues to hold steady, while APC backlog ticks down sequentially (~$26.7M currently, including ~$9.5M remaining on Chilean project). The project pipeline stays encouraging (esp. China), while sales cycles remain long and lumpy.
 Our 2014 estimates go to $113.5M/$0.20 from $119M/$0.25 (including higher taxes), while 2015 is introduced at $119.5M/$0.22. Valuation Our $6 target is based on a 0.9x EV/sales multiple applied to our ‘15 revenue estimate of $119.5M.
Risks Regulatory delay, lengthy utility technology adoption cycles, competition

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