Biofuel and Solar fall over 4%, other indices mixed (week ending 5/30)

Author: Mark Henwood

Broad market indices (Emerging Markets, EAFA, S&P500) all rose this week. Camino’s PurePlay™ indices were mixed with Renewable Electricity showing a 0.8% gain. Commodities (DJP) declined 2.6%.

Solar was the story of the week with our 34 member index decreasing 4.2% amid huge volatility.

The market moves this week were evidence of investors valuing companies based on government subsidies packages. On the 28th and 29th we saw reports that reductions in German subsidies might be greater than originally expected. And at the close of business on the 29th our index was down 9.2% for the week. Then on Friday reports came out that feed-in tariff reductions would be roughly in line with previous expectations – Solar rises 5.6% and closes out the week down only 4.2%.

Solar investors are also being influenced to an increasing degree by moves in oil prices. Over the last 365 days Solar and oil (measured by the OIL ETN) have been loosely correlated at .28. Over the last 30 days, however, the correlation coefficient has risen to .39 despite the fact that Solar’s electric market place isn’t driven to any significant degree by oil prices. Remember, only a portion of delivered electric prices are energy, and in most markets only a small portion of that is related to oil. So the data is showing that behavioral factors and regulator policy are important influences on valuations.

Biofuel had a down week dropping 4.5%. I don’t think this was a result of declining oil prices but rather was due to some specific company issues. Biofuel correlation (365 days) with oil has been a low .175 and has not trended upward recently.
Schmack Biogas (SB1.DE) led the decline after reporting a very weak quarter and a significant management change. The 54% decline in sales for the company raises some big flags. Pacific Ethanol (PEIX) was also down a significant 15.3% giving up most of the gains associated with its recent operating profit. While the company has been able to close its preferred stock offering, the offering has caused investors to rethink the pricing of PEIX.

Renewable Electric, up 0.8% for the week, continues to be the sustainable success story for 2008. The index is now down 2.3% for the year, outperforming both the S&P and matching EAFA. Of the broad benchmarks, only Emerging Markets, up 0.7% for the year, has performed better.

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks and has positions in Renewable Electricity.

The Week in Sustainable Energy Stocks (Week Ending 3/14)

Author: Mark Henwood

The Dow traded in a 569 range this week reflecting negative credit market news and strong intervention by government institutions. Global results were mixed with EAFA advancing and the S&P and Emerging Markets declining. The final changes were not dramatic. This translated into mixed results for the Camino indices with three indices retreating and one, Solar, advancing.

The Solar index increased 1.8% bringing the YTD decline for the sector to –41.5%. LDK Solar Co. LTD (LDK), which fell 21.3 % last week, led all stocks in the index with a 16.3% increase. Most of this gain happened Thursday and Friday after the company’s press release reported it had sold 100% of its 2008 production and 90% of 2009. The communication also shed some light on the inventory issue. This strong sales picture may be supportive of the view that demand for PV product hasn’t been affected much by larger economic concerns. Overall the sector had 19 stocks climbing and 14 stocks falling.

Biofuels experienced a 1.9% decline with 6 stocks rising and 10 stocks falling. Gushan (GU) was the leader recovering 7.5% after last weeks 24.9% decline. On the declining side, Schmack Biogas (SB1.DE) led the field with a 11.6% decrease. This may be a delayed reaction to the company’s 2/26 release of 2007 results where strong sales growth (47% !) was coupled with a wider than expected loss. VeraSun (VSE) and US BioEnergy (USBE) also suffered steep declines after VeraSun reported on Wednesday that ethanol prices weren’t increasing as fast as corn costs. Getting bigger with the merger isn’t going to change that equation.

In the Renewable Electricity sector Camino’s index retreated 0.5% with 8 stocks climbing and 11 retreating. Geodynamics Ltd. (GDY.AX) led the pack with a 17.2% decline. The only news we found was an ASX note on 3/11 that a flow test had been delayed until 3/14.

Fuel Cells had another down week with the index decreasing 3.2% on 3 stocks advancing and 4 stocks declining. ITM Power (ITM.L) suffered a 25.2% decline. On Feb 5 Citigroup criticized the company’s unfocused business strategy and apparently the company’s 3/14 announcement of a testing contract with Bi-Fuels did little to sharpen the strategy.

What did I learn this week? Traders are listening carefully to company communications and are very quick to take decisive action on news, both positive and negative. I also think LDK’s order news may be significant as a bell weather for overall demand in the solar sector.

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks. Mark holds a position in GDY.AX .