Air Pollution Market will be reshaped by new public companies
After thirty-four years of expectation, the air pollution control industry is
finally going to deliver for investors. The only problem is that, as of now,
there are few public companies which will realize increased profits from the
huge market. The McIlvaine Company in its Air Pollution Management
service, however, predicts that a number of new public companies will appear and
will reshape the market. This will include spin-offs of large companies as well
as roll-ups of smaller privately held companies with public offerings for the
combined enterprises.
Huge
purchases by power plants in the U.S. and China have created a market in 2005 of
more than $34 billion, of which half is new hardware and the rest repairs and
services. In 2004 McDermott (B&W) and Alstom, combined, generated several
billion dollars in revenues and hundreds of millions of dollars of profits from
this already hot market. The problem is that these profits provide little
opportunity for investors because of the overall size and performance of the
parent companies. BHA has been acquired by GE and, therefore, provides no
pollution play for investors.
Several pure play power plant air pollution stocks, ADA-ES and Fuel-Tech, now
have market caps each of over $125 million with P/E ratios from 78-350. This
reflects the enthusiasm of investors for this market segment. However, these
companies are presently providing products which address a small portion of the
$34 billion market.
POWER PLANT AIR POLLUTION REVENUES
2005 ($ Billions)
Segment Hardware Repairs and Consumables
$ Growth $ Growth
Precipitator 3.0 low 6.0 low
Fabric Filters 1.2 high 0.8 high
FGD 11.0 low 10.0 high
NOx 1.5 medium 0.8 high
Mercury 0.02 high 0.01 high
Total 16.7 17.6
Total $34.3 Billion
The
potential market segment for Fuel-Tech is a small fraction of the $2.3 billion
NOx control market. The ADA-ES future is heavily dependent on a
market for mercury control separate from FGD. This market is presently
minuscule, but even with high growth, will represent a very small part of the
total. So there are few if any public companies which represent a play in the
greater market.
The
FGD market in particular is attractive. The market for new hardware is already
$11 billion/yr and will remain at this high level.
McIlvaine predicts that the substantial available capital will generate two
types of activities. First, there will be pressure on companies such as Alstom,
McDermott and several Japanese companies to spin off their subsidiaries. The
McDermott P/E ratio is presently 20 compared to the ADA-ES ratio of 350.
Secondly, there are a number of private companies who stand to benefit
substantially from the market. Consolidation of some of these companies into
sizable entities will make them good candidates for public stock offerings. In
addition to U.S. companies, there are both European and Asian companies who can
greatly benefit from this market and would be acquisition candidates.
Acquisitions of Chinese companies are also likely.
Air Pollution Management tracks
performance of pubic companies as well as private companies. It provides
forecasts of the world air pollution markets. It also includes the monthly Gold
Dust Newsletter (turning dust to gold) with the latest news on regulations,
company performance and markets.
For more information on Air Pollution Management, click on: http://www.mcilvainecompany.com/air.html#5AB .
Bob McIlvaine
847-784-0012