Cleantech Investor

First published on the Cleantech Investor website, January 2010

By Andrew Hore

Although the AIM Cleantech sector recovered well in 2009, it still failed to outshine AIM as a whole, which gained more than twice as much. While cleantech share prices rose, a number of companies left the market and there were few replacements during the year.
 
The Sigma Capital Cleantech index gained a creditable 21.7% in 2009, compared with a rise of 58.7% for the FTSE AIM 100 index. The FTSE AIM All Share index, which covers all the companies on AIM, did even better and was 65.9% higher.

Following an initial period of underperformance, the Sigma Capital Cleantech index was catching up to the AIM 100 during the summer. However, the gap between the two indices widened again during the fourth quarter.

The storage sub-sector was the best performer of the year, having increased by 146%. This sub-sector is dominated by Chinese back-up batteries supplier China Shoto, which rose by 178%.

The fuel cells sub-sector, the second largest after the carbon sub-sector, rose by nearly 120% over the year, although it fell back during the final few weeks. The performance of this sub-sector is one of the major factors behind the rise in the overall index.

Fuel cell developer AFC Energy, whose share price rose 562% in 2009, is the best performing cleantech share in the index. Ceramic Fuel Cells, whose shares trebled in value, and catalysts developer Acta, which rose by 160%, were both among the top ten performers.

The only other sub-sector which more than doubled in 2009 was wind. This sub-sector is one company - Clipper Windpower: even so, it accounts for more than 10% of the index.

Carbon is by far the biggest sub-sector and Climate Exchange, which accounts for 14.6% of the index on its own, has the largest weighting of all the companies in the index. The carbon trading company’s share price fell by 28% over the period, which held back both the overall performance of the index and the carbon sub-sector, which fell by 5%. Climate Exchange was the eighth worst performer in the overall index.

The poorest performing sub-sector was solar, which fell by 6%. Again, this is a sub-sector dominated by one company – ReneSola, which has the second largest weighting in the overall index.

Whereas two years ago the Sigma Capital Cleantech index had 61 constituents, there are now only 37 companies remaining. The decline in the number of cleantech companies has been taking place over the past couple of years, but it really escalated in 2009. As a result, more than three-quarters of the weighting of the Sigma index is accounted for by the ten largest companies.
 
A total of 19 cleantech-related companies left AIM during 2009. Nine of those companies chose to drop their AIM quotations, while one shell company had failed to find an acquisition. Most wanted to save money, and four had quotations in North America so did not think it was worth having a secondary quotation in London.

Four of the companies ran into financial difficulties and their businesses were sold off. Other companies also became aware that they were running short of money, which spurred their decisions to leave AIM or, in two cases, to wind up the companies.

One company was wound up even though it was not in financial difficulties. In January 2009, shareholders voted to wind up the renewable energy investment company, KSK Emerging India Energy Fund, which had floated on 9 June 2008. Although shareholders were offered the chance of a tender offer that would have enabled KSK to continue as a smaller entity, it was at a time when investors wanted cash. Grant Thornton was appointed as liquidator. There was a potential £10 million claim from the fund manager, but KSK expected to pay out 97p a share to investors: the share price was 79p before the liquidation circular was sent out.

Two companies, EcoSecurities and Solar Integrated, were taken over during the year, and there is likely to be more merger activity. The takeover of Novera Energy is still about to be completed, and a merger between Leaf Clean Energy and Trading Emissions has recently been announced.

The ability to raise money will continue to be the key problem for AIM companies. Some,  such as Ceres Power, have raised enough cash to continue their development: others, though, will need to come back to the market during this year. Such companies will likely need to demonstrate that they have a commercial product, or are near to launching one, if they are going to persuade investors to part with their money.