Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Clean Air Power - disappointing

Clean Air Power (‘CAP’) updated the market today with regard to the trial by Tesco of a Euro 3 Mercedes - Axor truck, which was converted to run on diesel and natural gas and delivered to Tesco in August 2006.

Clean Air Power converts heavy duty diesel engines to run on natural gas and/or diesel. This reduces a vehicle’s fuel costs, but retains all the flexibility and reliability of a diesel, at a lower cost than other alternative fuels. The primary reason for conversion is economic, although the technology also provides reduced emissions. The group also sells gas injection and emission reduction components that it sells to other automotive OEMs.

Apparently the trial of the Dual-Fuel truck has met with all of Tesco's objectives, which include driver acceptability and achieving certain operational performance bench marks. Additionally, the trial unit has achieved a CO2 emission reduction equivalent of around 10 tonnes of CO2 per annum whilst reducing their fuel cost by more than 15%.

The trial vehicle continues to run in the Tesco fleet, however (and this is the significant bit for me) to date, Tesco have not ordered any further Dual-Fuel vehicles and have simply expressed a willingness to support Clean Air Power with their discussions with manufacturers- These discussions relate to looking to secure the incorporation of Dual-Fuel technology on Euro 4 and Euro 5 emissions compliant trucks. Whilst Clean Air Power is in discussions with a number of manufacturers, such discussions are not yet at an advanced stage.

If it all worked so well why didn’t they order more of these vehicles.
I consider this a fairly disappointing announcement for both CAP and Tesco for that matter.

While the announcement played down the state of the OEM discussions, the house broker has confirmed that apparently these are progressing well, albeit not yet near the heads of terms stage needed to be considered ‘ advanced’. Wincanton, DHL, Christian Salvesen and Robert Wiseman Dairies are currently all trialing Genesis on one or more trucks, some of which were outright system purchases.

The house broker has maintained its BUY recommendation (it generally takes a lot for the house broker to downgrade!). Its valuation is based on a seven year discounted cash flow which in my view is probably relatively meaningless for such an early stage business as this. Although I suppose you have to start somewhere.


Investor's Champion is a registered trade mark of Investors Champion Ltd.  Investor’s Champion Limited is a company registered in England and Wales under number 03577867 whose registered office is at Langwood House, 63-81 High Street, Rickmansworth, Herts WD3 1EQ. Investor’s Champion Ltd is associated with Fundamental Asset Limited who is authorised and regulated by the Financial Services Authority.