October 30, 2014

Revised Recommendation: HOLD

Previous Recommendation: BUY

Revised 12-Month Target: US$3.00

BALLARD POWER SYSTEMS INC.
(TSX-BLD / NASDAQ-BLDP US$2.78)

Previous 12-Month Target: US$5.00

Risk Rating: ABOVE AVERAGE

FY2014 EBITDA BREAKEVEN DELAYED

Sector:

SPECIAL SITUATIONS - TECHNOLOGY

Summary: Ballard reported Q3/14 results that were below our

and consensus estimates. EPS were ($0.02) versus JCI and
consensus of ($0.01). Revenue and gross margin missed our
expectations, while opex came in slightly better (see Figure 1).
The GM miss was related to product mix, as we had expected
greater revenue contribution from Back-up Power. While Adj.
EBITDA turned positive in Q3; in light of the revenue miss,
BLDP cut its FY2014 revenue guidance to a 20% increase
over 2013, down from previous guidance for 30% growth.

Analyst:
e-mail:
Tel:

DEV BHANGUI
dev.bhangui@jenningscapital.com
(416) 304-2191

Associate:
e-mail:
Tel:

CHRIS MARTINO
chris.martino@jenningscapital.com
(416) 304-2171

Back-up Power slows FY14 growth, margins: Order

deferrals in this high-margin business are attributable for the
Q3 revenue and GM shortfall. The deferrals are related to
municipal approval delays within the US Back-up Power
market BLDP is targeting, specific to NYC. Having
incorporated NYC Fire Department feedback into the
conditionally approved units, BLDP is set to become the only
supplier of rooftop-based power for BTS, as part of a network
hardening initiative by the unnamed US carrier client.
Engineering and Material Handling remain strong: A steady
$15 million/year Volkswagen engineering services contract will
anchor revenue as program milestones remain on track. In
addition, Plug Power recently renewed BLDPs multi-year stack
supply contract for FC forklifts, and continues to grow its
backlog exponentially, providing revenue growth beyond Q3.
Finally, the European-based JTI bus contract, which was
delayed in 2014, should be awarded in 2015.
Estimate revisions: BLDPs long-term prospects remain
favourable. However, with management having missed its own
Q3 expectations, we remain cautions on Q4. We have
conservatively reduced our Q4 revenue and margin estimates,
bringing them closer to the Q3 numbers, at $21 million and
25.5%, respectively. While we expect the bottom line to get
some lift from stock-based comp adjustments, Adj. EBITDA
remains negative in 2014, deferring BLDPs realization of the
EBITDA-positive milestone into 2015.

Target Price

$3.00

Share Price

$2.78
8%

Projected Total Return

Market Data
Ticker

NASD:BLDP

Last Price

US$2.78

Market Cap. ($M)

$367.2

Basic Shares OS (M)

132.1

Diluted Shares OS (M)

132.1

Cash ($M)

$32.7

Debt ($M)

$11.4

Enterprise Value ($M)

$345.9

Average Volume
Financials - Dec 31 FYE
Revenue ($000)
Gross Margin
Adjusted EBITDA ($000)
Adjusted EBITDA Margin
Net Earnings ($000)
Diluted EPS
EV/Sales
EV/ Adj. EBITDA

1,274,200
2013A

2014E

2015E

$61,251

$74,209

$102,037

27.4%

25.2%

29.0%

($8,315)

($2,314)

$5,896

-13.6%

-3.1%

5.8%

($21,700)

($13,860)

($1,561)

($0.21)

($0.10)

($0.01)

5.6x

4.7x

3.4x

nmf

nmf

58.7x

Valuation and Recommendation

We see several opportunities for revenue growth in new areas,
many of which were noted on the conference call. These include
the US rooftop Back-up Power units, two new aerospace
engineering services contracts, and potential bus contracts in
Europe for BLDPs new, lower-cost HD7 module. While BLDP is
a $75 million/year revenue operation, several segments remain
classified as development stage markets; and hence are volatile
from quarter to quarter with limited visibility. As such, we are
taking a wait-and-see approach by reducing our FY14/15
estimates and commensurately reducing our target to US$3.00
from US$5.00 and our recommendation to HOLD from BUY. We
will revisit our valuation with the release of FY2015 guidance in
Q1.

Ballard Power Systems Inc. produces and sells clean energy

fuel cell products, enabling optimized power systems for a range
of applications. The company has designed and shipped close to
150 MW of hydrogen fuel cell technology to date.

Please see important disclosures on last two pages.

Figure 1

Q3 Summary: Below Expectations; Nonetheless Improving YoY

Var

Q3/13
Reported

$21.9

-5.9%

$17.0

28.8%

(758 bps)

64.9%

$5.2

$6.5

-19.9%

$4.7

25.3%

31.8%

(653 b ps)

27.6%

Expenses
Operating Income

$7.5
($2.3)

$7.9
($1.3)

-4.3%
77.5%

$8.5
($3.8)

Adj. EBITDA

$0.5

$1.7

-73.3%

($0.9)

2.2%

7.7%

(551 b ps)

-5.2%

Total Revenue
Growth % (YoY)

Gross Profit
Gross margin (%)

Adj. EBITDA margin (%)

Reported

Q3/14
JCI Est.

$20.6
21.2%

Source: Ballard Power Systems, Jennings Capital Inc.

Figure 2
Ballard Power Inc. (TSX:BLD, NASDAQ:BDLP)
Income Statement (000s $USD)
Total Revenue
Cost of product and service revenues
Gross profit
Gross margin (%)

Income Statement
F2012A
31-Dec-12

Q1/13A
31-Mar-13

43,690
36,321
7,369

12,335
9,397
2,938

Q2/13A
30-Jun-13

Q3/13A
30-Sep-13

Q4/13A
31-Dec-13

F2013A
31-Dec-13

Q1/14A
31-Mar-14

Q2/14A
30-Jun-14

Q3/14A
30-Sep-14

Q4/14E
31-Dec-14

F2014E
31-Dec-14

F2015E
31-Dec-15

14,597
11,361
3,236

17,003
12,312
4,691

17,316
11,422
5,894

61,251
44,492
16,759

13,992
10,462
3,530

18,471
13,930
4,541

20,611
15,403
5,208

21,135
15,746
5,389

74,209
55,541
18,668

102,037
72,447
29,591
29.0%

16.9%

23.8%

22.2%

27.6%

34.0%

27.4%

25.2%

24.6%

25.3%

25.5%

25.2%

-21.7%

22.4%

113.9%

64.9%

5.1%

40.2%

13.4%

26.5%

21.2%

22.1%

21.2%

37.5%

19,273
12,306
6,901
38,480

5,296
2,995
1,936
10,227

4,142
2,874
1,922
8,938

4,090
2,551
1,869
8,510

3,589
2,993
1,934
8,516

17,117
11,413
7,661
36,191

2,998
2,780
1,895
7,673

3,556
2,896
2,000
8,452

3,230
2,419
1,867
7,516

3,300
2,120
1,965
7,385

13,084
10,215
7,727
31,026

12,422
9,420
7,890
29,732

88.1%

82.9%

61.2%

50.0%

49.2%

59.1%

54.8%

45.8%

36.5%

34.9%

41.8%

29.1%

Operating income (EBIT)

(31,111)

(7,289)

(5,702)

(3,819)

(2,622)

(19,432)

(4,143)

(3,911)

(2,308)

(1,996)

(12,358)

(141)

Finance income (loss) and other

Finance expense
Gain (loss) on sale of property, plant and equipment
Impairments

31
(1,690)
(69)
(10,570)

(679)
(427)
25
-

730
(493)
18
(363)

(382)
(298)
(219)
-

546
(268)
153
(150)

215
(1,486)
(23)
(513)

422
(242)
1
(150)

(215)
(234)
1

181
(232)
(3)
-

(230)
-

388
(938)
(2)
(150)

(900)
-

Profit (loss) before income taxes (EBT)

(43,409)

(8,370)

(5,810)

(4,718)

(2,341)

(21,239)

(4,112)

(4,359)

(2,362)

(2,226)

(13,059)

(1,041)

Income tax recovery (expense)

Net profit (loss) from continuing operations
Net profit (loss) from discontinued operations

(43,409)
(65)

(8,370)
(42)

(5,810)
-

(318)
(5,036)
66

(167)
(2,508)
-

(485)
(21,724)
24

(77)
(4,189)
320

(449)
(4,808)
-

(368)
(2,730)
-

(227)
(2,453)
-

(1,121)
(14,180)
320

(520)
(1,561)
-

Net profit (loss) for the period

(43,474)

(8,412)

(5,810)

(4,970)

(2,508)

(21,700)

(3,869)

(4,808)

(2,730)

(2,453)

(13,860)

(1,561)

Other comprehensive income (loss)

Foreign currency translation differences
Defined benefit plan actuarial losses
Net gain (loss) on hedge of forward contracts
Comprehensive profit (loss)

(186)
(807)
(20)
(44,487)

270
(8,142)

(50)
(5,860)

(339)
(5,309)

(73)
2,852
271

(192)
2,852
(19,040)

(1)
30
(3,840)

13
200
(4,595)

320
(278)
(2,688)

(2,453)

332
(48)
(13,576)

(1,561)

Net profit (loss) attributable to

Ballard Power Systems Inc. (continuing operations)
Ballard Power Systems Inc. (discontinued operations)
Dantherm Power A/S non-controlling interest

(42,070)
(65)
(1,339)

(7,936)
(42)
(434)

(5,203)
(607)

(4,574)
66
(462)

(2,275)
3,239

(19,988)
24
1,736

(3,841)
320
(348)

(4,457)
(354)

(2,423)
(307)

(2,207)
(25)
(221)

(12,928)
295
(1,230)

(1,405)
(16)
(141)

(0.48)

(0.09)

(0.05)

(0.05)

(0.02)

(0.21)

(0.03)

(0.03)

(0.02)

(0.02)

(0.10)

(0.01)

Rev growth YoY

Operating expenses
Research and development
General and administrative
Sales and marketing
Total operating expenses
% of Sales

EPS (basic)
Weighted average common shares o/s
Net profit (loss) attributable to BLD (continuing oper.)
Depreciation and amortization
Finance expense
Income taxes
EBITDA
Adjustments
Adjusted EBITDA
Adj. EBITDA margin (%)

87,592

92,233

99,233

99,364

(42,070)
4,840
1,690
(35,540)
13,463
(22,077)

(7,936)
1,275
427
(6,234)
1,662
(4,572)

(5,203)
1,277
493
(3,433)
502
(2,931)

(4,574)
1,525
298
318
(2,433)
1,557
(876)

100,030
(2,275)
1,654
268
(167)
(520)
584
64

100,030
(19,988)
5,731
1,486
151
(12,620)
4,305
(8,315)

114,756
(3,841)
1,220
242
77
(2,302)
487
(1,815)

130,392
(4,457)
1,425
234
449
(2,349)
1,284
(1,065)

132,049
(2,423)
1,517
232
368
(306)
757
451

132,104
(2,207)
1,365
230
227
(385)
500
115

132,104
(12,928)
5,527
938
1,121
(5,342)
3,029
(2,314)

(1,405)
5,200
750
520
5,065
831
5,896

-50.5%

-37.1%

-20.1%

-5.2%

0.4%

-13.6%

-13.0%

-5.8%

2.2%

0.5%

-3.1%

5.8%

Source: Jennings Capital Inc.

The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate or
complete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. Jennings
Capital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell such
securities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member CIPF. Jennings Capital (USA) Inc. is a
member of SIPC.

132,104

3
IMPORTANT RESEARCH DISCLOSURES
ANALYST CERTIFICATION:
I, DEV BHANGUI, hereby certify that (i) the views expressed in this report accurately reflect my personal views about the subject securities or issuers
discussed herein that are within my coverage universe; and (ii) I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report. In addition, each research analyst or associate whose
name appears on the front page of this document hereby certifies that:

I have not effected a trade in a security of any class of the issuer whether directly or indirectly through
derivatives within the 30-day period prior to the date of the publication of this research report.
I did not distribute the research report to the issuer, any employee in the investment banking department at
Jennings, or any other third party for any reason other than the verification of factual information.
Any and all reports or studies by a third-party expert consulted in preparing the research report have been
cited in the report.
I am unaware of any other potential conflicts of interest.

STOCK RATINGS:
BUY: Stock is expected to provide a total return in excess of 10% over the current trading price over the next 12 months.
SPECULATIVE BUY: Stock is expected to provide a total return in excess of 10% over the current trading price over the next
12 months; however, there is material event risk associated with the investment
HOLD: Stock is expected to provide a total return of 0% to 10% over the current trading price over the next 12 months.
SELL: Stock is expected to provide a negative total return over the next 12 months.
UNDER REVIEW: There are new developments on the Company and pending receipt of full information from management,
the stock is under review.
NOT RATED: Jennings Capital Inc. follows the stock, but has no formal estimates, recommendation or target.

RISK RATINGS:
LOW/AVERAGE RISK: Stocks with less volatility than the market as a whole, with solid balance sheets and dependable
earnings.

OCTOBER 2014
DISTRIBUTION OF RATINGS
RATING
#
BUY
SPECULATIVE BUY
HOLD
SELL
TENDER TO OFFER
UNDER REVIEW
RESTRICTED
Total # of Companies Covered
Revised Monthly

25
15
3
1
1
1
0
46

ABOVE AVERAGE RISK: Stocks with more volatility than the market. Financial leverage is considerable but not threatening,
earnings are more erratic, or other quality concerns regarding accounting, management track record, and similar issues.
SPECULATIVE RISK: Stocks of unproven companies or ones with very high financial leverage, suspicious accounting, or with
other significant quality concerns. A Speculative Risk rating implies at least the possibility of, among other things, financial
distress, restructuring or a material loss.

U.S. CLIENT DISCLOSURES

This research report was prepared by Jennings Capital Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor
Protection Fund and a Participating Organization of the Toronto Stock Exchange and the TSX Venture Exchange. Jennings Capital Inc. is an affiliate of Jennings Capital
(USA) Inc. Jennings Capital (USA) Inc. accepts responsibility for the contents of this research report, subject to the terms and limitations as set out above. Jennings
Capital (USA) Inc. is a registered broker-dealer with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA).
U.S residents seeking to effect a transaction in any security discussed herein should contact a General Securities Representative at Jennings Capital (USA) Inc. directly
at 1-877-214-3303.
JENNINGS CAPITAL INC. MAY NOT BE SUBJECT TO U.S. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS.
This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Any transaction in these securities by U.S.
persons must be effected through either Westminster Securities Corporation, a U.S. broker-dealer registered with the Securities and Exchange Commission and a
member of the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange Inc. or through Jennings Capital (USA) Inc., A U.S. broker-dealer
registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA).
U.S. PERSONS
This research report was prepared by an affiliate of Jennings Capital (USA) Inc. or other person that may not be registered as a broker-dealer in the United States. The
firm that prepared this report may not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts.
Subject to the limitations on liability described above, Jennings Capital (USA) Inc. takes responsibility for the content of this research report in accordance with Rule
15a-6 under the U.S. Securities Exchange Act of 1934, as amended. All transactions by U.S. persons in securities discussed in this report must be performed through
Jennings Capital (USA) Inc.

U.K. CLIENT DISCLOSURES

This research report was prepared by Jennings Capital Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor
Protection Fund and a Participating Organization of the Toronto Stock Exchange and the TSX Venture Exchange.
JENNINGS CAPITAL IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS.
The contents hereof are intended solely for the use of, and may only be issued or passed on to persons described in part VI of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2001.
This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.

DISSEMINATION OF RESEARCH
Jennings Capital Inc. research is disseminated directly to clients via email and is available on Bloomberg, Reuters, Thomson Financial, Capital IQ,
Research Direct and at www.jenningscapital.com. Jennings Capital Inc. research dissemination policies are available upon request.

4
Security Abbreviations: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares); MV (multiple voting shares).
Quarterly Recommendation Hierarchy: Is a ranking distribution identifying the percentage of total, number, and the investment banking relationship (%) for all
recommendation categories that can be found on the Jennings Capital Inc. website (www.jenningscapital.com).
Analyst Stock Holdings: Equity Research analysts, associates and members of their households are permitted to invest in securities covered by them. No Jennings
Capital Inc. analyst, associate or employee involved in the preparation of an analyst report is permitted to effect a trade in the security of an issuer whereby there is
an outstanding recommendation for a period of 30 calendar days before and 5 calendar days after issuance of the research report
Compensation: The compensation of the analyst and/or associate who prepared this research report is based upon, in part, the overall revenues and profitability of
Jennings Capital Inc. Analysts are compensated on a salary and bonus system. Some factors affecting compensation including the productivity and quality of research,
support to institutional, retail and investment bankers, net revenues to the equity and investment banking revenue as well as compensation levels for analysts at
competing brokerage dealers. Analysts are not directly compensated for specific Investment Banking transactions.
Jennings Capital Inc. Relationships: Jennings Capital Inc. may receive or seek compensation for investment banking services from all issuers under research coverage
within the next 3 months.
Jennings Capital Inc. or its officers, employees or affiliates may execute transactions in securities mentioned in this report that may not be consistent with the
reports conclusions

THIS IS AN ISSUER RELATED PUBLICATION

COMPANY SPECIFIC RESEARCH DISCLOSURES
NAME
Ballard Power Systems Inc.

RELEVANT DISCLOSURES

DATE
6/18/2014
7/31/2014
10/30/2014

BALLARD POWER SYSTEMS INC.

RATING
TARGET
BUY
US$4.00
BUY
US$5.00
HOLD
US$3.00

DISCLOSURE CODES
The authoring analyst, a member of his/her household, or any individual directly involved in the preparation of this research report has a long/short
position in the issuers securities or through derivatives or any other financial interest in the securities of the relevant issuer.
In the past 12 months, Jennings Capital Inc. and/or its affiliates received compensation for Corporate Finance/Investment Banking and related services
from the relevant issuer.
In the past 12 months, Jennings Capital Inc. and/or its affiliates, acted as lead manager or co-lead manager of a public offering of securities of the
relevant issuer or any publicly disclosed offer of securities or in any related derivatives of the relevant issuer.
In the past 12 months, Jennings Capital Inc. and/or its affiliates have received compensation for non-investment banking related services
The analyst has viewed the material operations of the relevant issuer; the extent to which the analyst has viewed the operations is available on request.
Partial payment or reimbursement was received from the issuer for related travel expenses.
Jennings Capital Inc., and/or its affiliates, is a market maker or liquidity provider in the securities of the relevant issuer or in such related derivatives of
the relevant issuer.
As of the end of the month immediately preceding the date of publication of the research report, or the end of the second most recent month if the
publication date is less than 10 calendar days following the most recent month end, Jennings Capital Inc. and/or its affiliates beneficially owned 1% or
more of any class of equity securities of the relevant issuer.
A partner, director, officer or agent of Jennings Capital Inc., and/or its affiliates, or a member of its household, serves as an officer, director, employee
issuer, or Advisory Board Member of the relevant issuer; and such persons name is disclosed above.
In the past 12 months, Jennings Capital Inc. and/or its affiliates, officers or directors, or any authoring analyst involved in the preparation of this research
report provided services to the relevant issuer for remuneration, other than normal course investment advisory or trade execution services.

PRICE
US$3.56
US$4.16
US$2.78

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