A Member of Pat McKeough’s Inner Circle recently asked for his advice on a bioenergy company that makes systems to improve energy efficiency, lower emissions, and cut water use for industrial, commercial and institutional clients.

Pat notes that the company’s products have yet to attract substantial sales despite numerous new contracts. The company is heavily reliant on those agreements to generate revenue in very competitive markets. That makes growth difficult, says Pat. Read on for analysis you can use.

Q: Pat, I have been following Thermal Energy International for a while. It is in an area (environment) that is gaining traction. I am trying to understand what is holding this company back. I would appreciate your perspective. Thanks.

Thermal Energy International (Symbol TMG on Toronto; www.thermalenergy.com), makes systems that aim to improve energy efficiency, lower emissions, cut water use and produce bioenergy. Its clients are in the industrial, commercial and institutional markets.

Thermal Energy’s products include GEM steam traps and condensate return systems; the FLU-ACE heat-recovery system; and the Dry-Rex low-temperature biomass drying system.

The company has recently signed a number of new contracts. Those deals include a $750,000 contract to install a FLU heat-recovery system for a major hospital; it should reduce the facility’s carbon emissions and cut its steam requirements by 14%. Thermal Energy has also entered into a $300,000 agreement to install a heat-recovery system at a food and beverage company.

Thermal Energy has a number of its FLU-ACE systems already installed at hospitals and pulp and paper plants as well as its GEM systems at food and beverage facilities.

Inner Circle: A new acquisition should complement existing technology products

In June 2018, the company paid $2.25 million U.S. for privately held Boilerroom Equipment Inc., based just outside of Pittsburgh. The price could increase by $350,000 if Boilerroom meets certain growth and performance targets over the next three years.

Boilerroom makes its HEATSPONGE brand of indirect contact heat recovery units to capture waste heat in both commercial and industrial steam and hot water applications. Its products should complement Thermal Energy’s FLU-ACE technology.

In the three months ended November 30, 2018, Thermal Energy’s revenue rose 39.2%, to $5.2 million from $3.7 million a year earlier. It lost $112,122, or $0.001 a share, compared to a profit of $70,514, or nil per share.

The company’s products have promise, but they have yet to attract substantial sales, much less sustained profits or positive cash flow. Moreover, Thermal Energy is heavily reliant on new contracts to generate revenue, and all three of the areas in which it operates are highly competitive. The company will need to spend considerable amounts on sales and marketing to successfully penetrate those markets. Whether it can do that is far from certain.

In addition, the stock is a thin trader, which makes it subject to wider price moves in response to its earnings reports.

Recommendation in Pat’s Inner Circle: Thermal Energy is not recommended.