Massive opportunity in the School Bus EV sector

Company: Blue Bird Corp
Business: School bus manufacturing
Ticker symbol: BLBD
Listing: Nasdaq USA
Market cap: 720 Million USD
Share price: 26,55 USD
Turnover: 879 Million USD in 2020

Company introduction:

Blue Bird Corp (BLBD) is the leading school bus manufacturer in the US that has developed an electric vehicle solution already available for large scale commercialization. With schools about to open up again, BLBD will face an explosion of pent-up demand for electric school buses. BLBD is significantly undervalued relative to EV peers and even more so as a reopening play.Biden’s 500,000 electric school buses in five years plan is a great opportunity for BLBD’s school bus niche. A narrative shift comparable to the contract that moved Workhorse’s valuation to $4B+ will most likely move BLBD multiples a lot higher.

Peer evaluation comparison:

As you can see above Blue Bird Corp is massively undervalued to comparable peers at least when it comes to using EV/revenue as an evaluation multiple which is something that the EV market in general looks to as a meaningfull comparison.

The three noted electric school bus peers above are valued on future revenue and largely unproven business models. Unlike its peers, Blue Bird Corp has a proven fleet of reliable vehicles, along-side electric buses already being commercialized. As opposed to speculating on growth in future years, investing in Blue Bird Corp, which is not only profitable, but already controls a majority stake of the EV market for school buses could be a wise choice.

Undervalued and Underappreciated

Blue Bird Corp (BLBD) is an undiscovered powerhouse in the electric vehicle (EV) space. Its most likely the best EV value for money in the market today and is set to dominate the upcoming EV school bus manufacturing explosion.

BLBD is the leading independent designer and manufacturer of school buses in the United States, with over 150,000 buses in operation today. BLBD is also the market leader in alternative fuel applications with its propane powered, electric, and compressed natural gas-powered school buses. BLBD is most likely the immediate front runner to capitalize on the school bus electrification plans of the Biden Administration. With child safety of the utmost importance, we believe BLBD’s decades of experience in manufacturing buses and its extensive relationships with school boards, give it a powerful edge against competitors.

To date, BLBD is and remains the #1 electric school bus manufacturer in the US. On 12/9/20, BLBD announced it had delivered its 300th electric school bus, more than every other company combined. As noted on page 8 of BLBD’s 7/21/20 investor presentation, an electric school bus currently costs $350K vs. $100K for its diesel fueled one. Although the 3.5x premium appears pricey, the operational and maintenance costs are lower compared to diesel. With federal mandates now enacted, subsidies will cover the lion’s share of the cost.

BLBD has a 20-year history of profitability, and a reputation for safety. With children’s safety playing the most critical role in the decision-making process, we think BLBD will be the obvious choice for schools and districts. An example of bus safety gone bad, BLBD’s competitor Proterra’s entire fleet was taken off the road in February 2020 in Philadelphia due to mechanical issues – the third fleet issue identified within a year.

Biden’s election victory over Trump was a big victory for BLBD. Immediately after inauguration, Biden instituted his “Back to School” reopening pledge. We believe this provides a near-term margin of safety for getting school buses back on the road, and for BLBD’s business to accelerate forward again. Horlock stated on 2/10/21 in the fiscal Q121 earnings call:

When schools are closed, buses aren’t being ordered. The good news is that when schools are open, it’s business as usual, with school bus orders being placed. That’s great for us to know as we move forward. Following the recent holiday break, however, we have been seeing more schools resuming in-classroom teaching, and that’s led to increased quarter activity for our new buses.

As stated in this article, Biden wants to open most schools within his first 100 days in office. Biden called on Congress to direct at least $130B to schools, and $350B to state and local governments to help prevent school layoffs. Teachers remain on track as the next in line to receive a COVID vaccine after essential workers. We think the clear path forward will make for an aggressive buying season for EV school buses as early as the fall.

Evaluation and business case Summary

At its current valuation, BLBD provides ample margin of safety on the legacy school bus business, with multi-bagger upside on the inevitable conversion to electric.
If the Biden administration is serious about replacing the 500,000 school buses to electric within 5 years, BLBD will need a lot more capacity. For example, if BLBD reaches a production capacity of 10K school buses per year, that would give the company $3.5B in annual revenues for its electric school buses. If we apply an EV/Revenue evaluation of 5 for BLBD ( which is 50 % below Proterra’s current multiple) we get a market cap of 17,5 billion USD. Compared to todays market cap of 720 million USD. This example equals an upside of staggering 24 times todays share price = 645 USD and that based on relatively conservative multiples for the EV sector.

Remember the US market for switching 500 000 school buses to electric propulsion is worth 100 billion USD and the evaluation example above only assumes a market share of 3,5 % of this, and thats for the market leader in the alternative fuels sector of school buses namely Blue Bird Corp.

Credit in this post is given to White Diamond Research which created the original report on this great company.

As always do your own research and this is not to be considered financial advice in any way.

NEWS AND CEO interview with Thermal Energy International 2021-02-24

Company: Thermal Energy International
Business: Energy/carbon capturing and recycling
Ticker symbol: TMG.V in Canada and TMGEF for the US OTC.
Market cap: 32 Million CAD
Share price: 0,2 CAD
Listing: TSX Venture exchange and US OTC gray sheets
Turnover: 21 Million CAD in 2020
Revenue growth rate: 78% growth last quarter, Annually between 25-40 %
Company Evaluation: EV/ Sales ~ 1,2 , EV/EBITDA ~10,6 , P/E ~19 *
Peer evaluation comparison : Xebec EV/Sales 17 X , Greenlane GRN Ev/sales 20 X

* Assuming Pre-covid-19 levels

This News Release Update was announced on 2021-02-24 AFTER our CEO interview. TMG has announced a big order by a prominent multinational brewer to supply a turn-key heat recovery system to one of its North American sites. The system, valued at over $1,000,000, will feature two of Thermal Energy’s proprietary heat recovery technologies, TMG is now working with three of the top five brewers worldwide.
Read more here:

ESG Comment 2021-02-24: We are impressed by the continued growth of TMG and their continued journey of becoming the market leader in their business. The latest order should open new sales opportunities for TMG which will generate even more growth. TMG continues to be extremely cheap evaluated compared to its peers. I believe TMG should conservatively speaking at least be valued at an EV/Sales multiple between 5-6 which would indicate a current share price between 0,83 – 1 CAD compared to the latest closing price of 0,20 CAD .

Company Introduction:

Thermal Energy International is a profitable established global provider of industrial energy efficiency solutions. Their proprietary products capture up to 80% of wasted energy from boiler plant and steam operations and recycle it back into the process. They are in other terms a provider of proprietary and proven energy and water efficiency and emission reduction products and solutions to the industrial, commercial, and institutional markets. TMG was established in 1991. The Company is headquartered in Ottawa, Canada, with offices in the U.K., Italy, Germany, and U. S
The company has many large international customers including several Fortune 500 companies[1].  TMG also has a long term plan for increasing both growth /results and also to grow investor awareness [2]

Thermal Energy International posted extremely strong numbers for FYQ2 2020 showing 78 % growth rate compared to the latest quarter. Gross profit rose 81 % compared to the last quarter. The cash position is also very strong at 5 million CAD and debt position is very low. All in all the financial situation is highly impressive for a company of this size.

We had a video conference call with the CEO Bill Crossland at Thermal Energy international recently to ask a few questions on the ongoing operations and forward-looking projections. Below you find a transcript of our call.

ESG: Hi Bill welcome to our conference call , we’re glad you could arrange a time for us to speak!
Bill: I’m glad to be here!

ESG: Given that you’re now running on a positive cashflow, do you see any risk of needing any new capital injection through private placement or similar procedure soon?

Bill: We do not see any such need at the moment since we have almost 5 million CAD in cash and a healthy balance sheet. Back in March 2020 nobody knew what the impact of  COVID would be so we attempted to reduce costs as much as possible to be proactive and conserve cash. We also obtained a $1 million government backed low interest COVID loan . Right now, including the COVID loan and the loan we obtained to acquire Boilerroom Equipment Inc (BEI) and the Heatsponge technology back in 2018, we have a total of $3.6 million in debt which is quite manageable.

ESG: I suspect that some of the good numbers in the latest report were somewhat due to pent up demand, do you expect you will be delivering the same growth numbers going forward?
Bill: Some was from pent up demand and the completion of stalled projects earlier on in the pandemic but some was also from new orders. Given the travel restrictions and site lock downs that characterized the early months of the pandemic getting access to customer sites to develop or complete projects became very difficult.

So a number of projects that were underway when the pandemic hit ground to a halt at the start of the pandemic . But our order intake for the first six months of this fiscal year is up 66% compared to the same period last year. So after the slowdown in Q4 and Q1 due to the pandemic, in Q2 we were able to resume work on many of the ongoing projects and start fulfilling some of the new orders.

Our business environment is of course still challenging due to COVID but more recently we have seen much stronger interest and activity from our customers. 

ESG: So where does the revenue for Thermal energy come from ?

Bill: We have 3 main product lines, Flu-Ace direct contact heat recovery solutions, GEM steam traps and Heatsponge indirect contact heat recovery systems. We also have two different ways of delivering our solutions to our customers, turnkey solutions and equipment only. Turnkey solutions represents about 70 % of our revenues. With turnkey solutions we design, engineer and install complete Flu-Ace, GEM and Heatsponge energy efficiency solutions utilizing our proprietary products and knowhow. We design these projects in partnership with our customers to meet or exceed their cost savings, return requirements and emission reductions expectations.

Equipment sales is when we just sell the Flu-Ace, GEM or Heatsponge equipment without installation. This represents about 30% of our revenue. As you would expect the equipment sale margins are higher but revenue much less. Equipment sales do not require the same level of site visits as turnkey solutions and that is the business that kept us going during pandemic lockdown.

ESG: Have you noticed any change in your customers behaviour the last year?

Bill: Yes, we are seeing a significant increase in our customers’ desire to reduce carbon emissions and a widespread commitment to “build back better”. Many countries and companies have recently increased their carbon emission reduction targets, Canada and the EU have announced aggressive increases in carbon taxes, Biden administration has said that climate change will be at the centre of all of its policy, the UK and EU have both recently increased their carbon emission reduction targets and investors are increasing requiring companies to do more and disclose more with respect to carbon emission reduction. The attitude towards our products and ESG investment in general seems to have changed significantly in the United States, Canada and Europe over the last 12 months.

ESG: What do you expect growth to look like going forward?

Bill: Our target is to continue to grow as we have in the past but investors should not look only at our quarterly results since these can be choppy due to the timing of large projects. For the  5 years ending just before the global pandemic we had a compound annual growth rate on our revenue of more than 30 %. While the site lockdowns and travel restrictions did cause a slowdown in our activity for a couple of quarters, our second quarter results just announced were very close to our pre-pandemic levels. As I mentioned many companies and countries around the world have recently increased their carbon emission reduction targets. As a society we currently waste more than 50% of the energy we use is lost due to inefficiency. Energy efficiency is by far the fastest, cheapest, and most significant way to reduce carbon emissions. And unlike other carbon emission reduction solutions, energy efficiency does not cost money,  it saves money.

The majority of our customers are very large multinational companies with hundreds of sites around the world. Our strategy going forward is to leverage our existing high quality customer base by implementing projects at multiple sites and cross selling our growing list of complimentary thermal energy efficiency products. The sales cycle for a new project with a new customer is quite long but once we have established their trust and confidence with the first project the sales cycle for subsequent projects cycle can be shorter. With relationships at the corporate or divisional level we often work in partnership with the customer to identify the next appropriate site for a project.

Our growth strategy also includes adding to our suite of complimentary products and growing our team and global footprint.

And we hope to do all of this both organically and by accretive acquisitions.

ESG: What is the payoff time for your products for your customers?
Bill: Usually our projects and products have a payback of  between 2 to 5 years but and our products can easily last as 30 – 40 years so the total return to the customer can be quite compelling.

ESG: Who are the competitors for TMG?

Bill: We generally do not compete with anybody thanks to our unique best-in-class proprietary products and solutions. Our turnkey solution approach and related proprietary knowhow tends to be a strong differentiator and competitive advantage for us. Usually when we first approach a customer they do not know about our products or what they can do. We deliver site specific turnkey solutions. So if they wanted to do something similar to what we provide they would first need to retain an engineering firm to develop and design the project, then they would need to try and source or piece together some equipment with similar capabilities and finally hire a contractor to install it all.  All of this could take years. Alternatively, they can just retain us, as a single point of contact and responsibility, to deliver a finished project and begin saving energy and money right away.

ESG:What is the challenge for TMG going forward?

Bill:As an engineered technology solution provider, we are a people company so our main challenge, has always been growing our team of talented engineers and technical sales people. Given the unique nature of our products and solutions there is a lot of training required and a long learning curve for new staff to get up to speed

ESG: You have previously discussed producing more products that will give reoccurring revenue can you share some details on this?

Bill:We would love to install a project and take an earnings stream out of the savings but our large multinational customers have a very low cost of capital and little interest in this. We do always pitch selling our projects as a service from the savings generated, and that often gets them interested, but at the end of the day they always want to own the project  and earn the full return for themselves. History has shown us that the only time a customer is interested in buying our product as a service is if they are capital constrained and a bad credit risk in which case we would not want to do it with them anyway.

We do have some reoccurring revenues in terms of service and maintenance contracts but since our products require minimal maintenance the amounts are small. So while these service and maintenance contracts do provide a bit of stable recurring revenue the main advantage is it maintains an ongoing customer relationship at each site allowing us to makes sure they remain pleased with installed system while at the same time keeping our eye open for potential new and add-on projects.  

ESG: You have many large Fortune 500 companies as customers why don’t we see you promote this with customer names on your website and in your presentations?

Bill: We spend a lot of time developing our projects and customer relationships. We consider our customer relationships, as well as specific details about individual projects, proprietary.  As a result, while it may provide some short term publicity, we don’t believe it is in the best long term interest of our business to name our customers.

ESG would you consider engaging an external company to handle your investor relations?   

Bill: We have done almost nothing in terms of investor relations until very recently. The first phase of our strategic plan was to establish a solid track record of growth and profitability. That is what we have been doing for the last 5+ years. With that now established we have now begun to more proactively engage in investor relations and outreach..
We recently participated in two virtual conferences in December, Benszinga and LD Micro, and also did an online follow-up presentation and Q&A session with SmallCap Discoveries in January.

ESG: Would you consider up-listing to the Nasdaq?

Bill: No definitive plans at this point but we have recently been getting more interest from the US investors so if an OTC listing would be helpful we would consider it.

ESG comment: There is an inofficial OTC listing for TMG right now but there is are differences between this and an official one.

ESG: Do you have any plans for doing a reverse split seeing there are so many shares in the company?

Bill: We have talked a lot about doing a reverse split over the years but at this point I am not convinced it would be of value. We have done some share buybacks in the past and would consider it again under the right circumstances.

ESG: Thank you for taking the time to talk with us Bill we hope to check in with you soon again!
Bill: My pleasure and let’s do that!

[1] Company website :

[2] page 3