Cascade Microtech BUY

CSCD : NASDAQ : US$11.92 BUY 
Target: US$15.00

COMPANY DESCRIPTION:
Cascade Microtech is a leading developer of advanced
wafer probing solutions and production probe cards used
in the measurement and testing of semiconductor
integrated circuits. Cascade customers use its products
to perform testing of chips while in wafer form in both
engineering and production test environments.

Sustainability — Energy & Power Technologies
CSCD DELIVERS GM UPSIDE.
MAINTAIN BUY. PT TO $15
Investment recommendation
We maintain our BUY rating on CSCD as we believe that
increasing complexity of new materials, tighter specifications and
the increasing cadence of next-generation node shrinks will
continue to drive high-end test and measurement solutions and
earnings leverage for the company.
Investment highlights
 Cascade reported in-line revenues with a beat on the bottom
line. Q3 guidance was below expectations but we expect a
good rebound in the Q4 period as the overall spending
environment rebounds.
 The strength in income this quarter was driven by record
gross margins in both engineering systems and production
probes.
 We expect that Cascade will continue to deliver margin
upside as the higher-margin production probes for RF test
grow as a percentage of sales. Some of this gross margin
benefit may be offset by higher R&D spend in the near-term
but the company’s 20% adjusted EBITDA model remains
intact.
 The company highlighted new partnerships and products in
the quarter, which help give us confidence in its leading
position in semiconductor engineering systems and RF production probes.

Lumenpulse

LMP : TSX : C$17.90

BUY 
Target: C$25.00

COMPANY DESCRIPTION:
Lumenpulse is a manufacturer of specification-grade LED
lighting fixtures. The company was founded in 2006 by
lighting industry veterans and has quickly developed a
large suite of product families and amassed significant
industry awards and accolades. Headquartered in
Montreal with additional R&D operations in Boston,
Lumenpulse levers its leading brand and channel to drive
sales within North America and abroad.

Sustainability — Energy & Power Technologies
INCREASING THE PULSE OF THE LIGHTING INDUSTRY
 We are initiating coverage on Lumenpulse with a BUY rating and
C$25 price target, which is based off of a 22.5x multiple to our
CY2016 EPS estimate.
 Lumenpulse is a leader in the LED specification-grade market, a
$39B market estimated to be growing by 30%+ per year as part of
the broader secular transition to LED lighting.
 Lumenpulse has developed a strong distribution network that
supports margin expansion and greater-than-average industry
growth, both of which we believe are appealing to investors.
 We believe the company has developed key technologies in the
controls and lighting segment, which should enable scale or
potential licensing opportunities in the future.
 With a robust balance sheet and public stock, Lumenpulse can now
augment its growth both organically and inorganically.

 

Capital Power Corporation

CPX : TSX : C$22.92 
BUY  Target: C$26.00

 COMPANY DESCRIPTION: Capital Power has interests in 16 facilities across North America, with about 3,600 MW of net owned or operated power generation capacity as well as 371 MW of capacity owned through power purchase agreements (PPAs). The company has an additional 595 MW of capacity under construction or in advanced development.
All amounts in C$ unless otherwise noted.  Refer to page 2 for target price valuation methodology.
Infrastructure — Power CLEAN Q4/13; MORE CONTRACTS, GROWTH PROJECTS ON SCHEDULE AND TALK OF DIVIDEND INCREASE 
Investment recommendation

Capital Power reported fourth quarter recurring earnings of $0.35 per share, in line with our estimate and the $0.34 consensus estimate. The earnings benefitted from strong plant availability, but were offset by a lower average Alberta power price on merchant production. The fourth quarter results were clean, with solid numbers, and had little in the way of additional news. However, Capital Power continues to march along with the development and construction of new assets which are on time and below original budget: the Port Dover & Nanticoke Wind Farm is now expected to have a capital cost of $300 million, down from an original estimate of $340 million and a revised estimate of $315 million. We view 2014 as a transition year where increased contracting at a modestly lower average price may provide greater certainty over earnings and cash flow yet at a lower level than seen in 2013. However, as new, highly contracted projects are completed in 2015 and 2016, earnings should steadily improve. Also, as greater clarity is known on the targeted early 2015 startup of the Shepard facility, the potential for a dividend increase also climbs. Given the statements from management about a possible dividend increase, we have speculated that an announcement could occur later this year. The company has quality assets, a robust growth portfolio, is becoming more contracted and should generate strong and improving cash flow and earnings per share growth over the next three years, which should garner an expansion in the stock’s valuation multiples as well as provide flexibility for future dividend growth. We believe the stock is set for gradual turnaround as growth initiatives are executed on and as the EPCOR block of shares declines. We are maintaining our BUY rating.

Ameresco

AMRC : NYSE : US$9.31
BUY 
Target: US$11.50 

COMPANY DESCRIPTION:
Ameresco is a leading provider of energy efficiency solutions for facilities throughout North America. Principal services include the development, design, engineering, and installation of projects that reduce the energy and operations & maintenance costs of facilities. The company also constructs and operates small-scale renewable energy plants.
All amounts in US$ unless otherwise noted.

Sustainability — Energy & Power Technologies
FRUSTRATING, BUT FORESHADOWING A CHANGE; MAINTAIN BUY Target $11.50
Investment recommendation
Market conditions stay challenging, while funded backlog looks to improve further in Q4 (helping visibility in ’14). We stay constructive here as we expect ’14 could bring the launch of a fresh corporate structure (e.g. dividend), along with our much more conservative outlook and underlying valuation (~2.1x TBV) provide support for shares.
Investment highlights
 Ameresco reported Q3/13 revs/EPS of 161.6M/$0.10 vs. our $177.0M/$0.15 and the Street at $185.0M/$0.18. Contracted backlog increased ~13% q/q to ~$366M (first positive move in 10 quarters, expected to grow in Q4), while full-year rev/net income targets get narrowed to $570-590M/$11-13M on delays (from $620-640M/$18-21M). Guidance now factors a more elongated view of conversion rates for funded projects (~18 months).
 Importantly, the balance sheet remains well-positioned to weather this protracted period of variable demand. We note FCF generation of roughly $1.6M in the quarter, supporting the core business.
 Our estimates adjust to reflect reported results and conversion delays. F2013 goes to $570.0M/$0.21 (from $620.4M/$0.39); F2014 to $585.0M/$0.25 from $682M/$0.55.
Valuation
Our $11.50 target (from $12.50) is based on a ~16x EV/EBITDA off CY14.
Risks
Long & lumpy sales cycles, governmental customer concentration, project financing dependency, insider control.