Extremely Positive Paradigm Report Well, I just read a hard copy of Paradigm Capital’s report on RailPower. To say the least I’m delighted. I’m very impressed by the quality of this 27 page report, prepared by someone by the name of Marvin Wolfe. It is worth getting your hands on it. I will try to summarize its gist, hit some of the highlights, but I really can’t do it justice. It should be read!
Lets begin with the bottom line. Paradigm is initiating coverage with a buy recommendation and a one year target price of $4. Though Paradigm regards RailPower as a “speculative” investment, it suggests that RailPower is a “very low risk vehicle” in the “hybrid technology wave for transportation application.” Not only does the report suggest that RailPower has a good shot at making increasingly attractive profits but it also suggest that a takeover of RailPower is a “possibility” because it would permit an “OEM to have a Tier 2 compliant product and a major presence in the switching industry.”
The report suggests that RailPower currently as on its books 24 conditional orders for units. The condition for all these orders is a one month satisfactory trial. The report points out that with all of these orders, the condition only applies to the initial unit. This number of units on conditional order may not blow your socks off but the Report suggests that break even for the RailPower is somewhere between 22 - 25 units. Given that there is time to get more orders and that previous cold weather (Chicago) and hot weather trials (Sacremento), according to the Report, were astoundingly positive, RailPower’s situation seems quite positive. The Report regards these Union Pacific trials as very important. It suggests that the proven value, efficiency and environmental friendliness of patented RailPower switchers will be a “catalyst for commercialization and acceptance....”
The Report sets out the usual risks, for example, entirely new and superior technology being developed, etc., but says that the risk of commercial “execution” has been minimized because with the $12.45 M raised in the recent financing, RailPower has the “working capital” to execute. Given this capital and the success of the tests to this point, the report opines that RailPower will transition from an development company into a commercial company very quickly. I would add that we are seeing hybrids emerging as a real force in the motor vehicle sector and I really don’t see why, given that the technology obviously works with switchers, the acceptance level would be any different in the rail vehicle context.
The market is apparently quite large, surprisingly so. It is comprised of Class I Railways, short line and industrial railways and even commuter passenger fleets. 21% of the fleets of the 6 largest Class one Railways are switchers, that is 4,725 of 22,817 locomotive units. Virtually 100% of the short line and industrial railway units (approximately 5000) are switchers and the Report points out that RailPower’s switchers can offer important advantages to the commuter passenger market with fleets of somewhere between 500 - 1000. Additionally the Report suggests that there are prospects that RailPower could tap into huge foreign markets, Europe and Asia. Part of the reason why this is feasible is that one way of acquiring RailPower technology is to retrofit existing units with the RailPower system.
The Report reviews the advantages of RailPower switchers in detail. Some of these I have already mentioned: very significant cost savings for (a) the original acquisition of RailPower units, (b) fuel savings and very significant pollution reductions. As well maintenance costs are very much reduced, compared to conventional diesel units. The RailPower units were also regarded as quick, dependable, and safer than conventional units. There were also quick start advantages.
The report characterizes RailPower’s technology as an “ideal hybrid application”, “elegant simplicity”.
Do yourself a favour, read the Report as I have just scratched the surface of what it contains.