Investing in the Backbone of Modern Life.
I'm excited about this investment opportunity that's unfolding right in front of us. It feels even bigger than AI, crypto, or electric vehicles. This sector is poised for massive demand, no matter if we're heading towards good times or facing some tough challenges. It's the backbone of our modern life—without it, our entire global economy would come to a standstill.
Just think about everything that keeps our daily lives running smoothly. From our smartphones and home appliances to streetlights, EV charging stations, and the massive data centers that power the internet—everything relies on electricity. This vital resource powers all we depend on, and its consumption is increasing at an unprecedented rate.
Several factors are driving this surge in electricity demand. With more people, there's naturally more electricity usage. The rise of electric vehicles (EVs) is another significant factor, as more EVs are plugged in throughout the day at work, home, and public places. But the biggest driver is AI. For example, a single ChatGPT request uses nearly ten times more electricity than a simple Google search, and AI data centers—where AI operates—consume about 30 times more electricity than regular data centers.
Data center construction is booming, with big names like Amazon, Google, Microsoft, and Meta investing heavily in this area. Some of these data centers consume as much electricity as a small city. The rise of automation is also pushing electricity demand higher. Companies like Walmart and Amazon are running fully automated distribution centers where robots handle tasks that humans used to do. These robots work 24/7, don't sleep or eat, but they do need a constant supply of electricity.
This surging demand for electricity presents a huge opportunity that's still in its early stages. Big investments are flowing into energy infrastructure, and it’s an opportunity that I don't want to miss. I'm planning to get in early by investing in companies that provide the critical components for this sector. In this issue and the ones to follow, I'll be sharing how I'm investing in this significant opportunity.
Wireless Power
To kick off our new series on electricity investment opportunities, let’s dive into a company that's already in my portfolio and looks set for a strong year ahead. After a challenging 2022, their sales are starting to climb again, showing promising signs of recovery.
This company is changing how we think about power delivery. They create off-grid, remotely managed power systems that have been installed in 45 countries.
Their smart power technology operates and manages solar, grid, generator, and wind-powered devices, all connected to a cloud-based system for analytics and management. This innovative setup, along with their ongoing management service, cuts the upfront costs of off-grid power systems by over 40% compared to traditional grid-dependent power.
In a world where electricity demand is surging, this company’s products are perfectly positioned to help cities ease the strain on the grid.
Clear Blue Technologies: Powering the Future of Energy
With the world seeing a huge increase in electricity demand, Clear Blue Technologies (TSXV:CBLU) is in a prime position to benefit from this trend. As cities and companies look for ways to cut their reliance on the grid and use sustainable, off-grid solutions, Clear Blue's innovative products and services meet these needs perfectly.
Clear Blue offers advanced power systems like smart, off-grid streetlights, power systems for cellular towers in remote locations, and small power solutions for satellite communications.
Clear Blue manages and operates all its Smart Power systems, generating a steady stream of recurring revenue. Each system includes three years of pre-paid management and operations service. In North America alone, Clear Blue has customers in at least 27 U.S. states and 9 Canadian provinces. Globally, their systems power and control lighting, security, and telecom applications across Europe, the Middle East, Africa, and Southeast Asia.
Let's dive into the exciting range of products this company offers.
Illumient Solar-Powered Street Lighting
These systems deliver off-grid, solar-powered street lighting that can be managed remotely. They cut down on grid dependency and ensure continuous lighting even in hard-to-reach areas, offering significant cost savings and sustainability benefits. For those of you living in Toronto, you can see the company's Illumient lighting in action. The company installed 40 of its solar-powered street lights along Bloor Street West in Toronto.
Nano-Grid
Nano-Grid is a compact, efficient off-grid power solution designed for smaller cellular towers, ideal for regions like rural Africa and Latin America. This system eliminates the need for extensive infrastructure such as transmission lines, roads, and regular maintenance, making it essential for bringing cellular telecommunications without the high costs.
The Nano-Grid is designed for easy installation and maintenance, featuring a modular structure for quick deployment and scalability. By reducing the need for extensive infrastructure, Nano-Grid offers significant cost savings and operational efficiency, perfect for remote areas and rapidly developing regions.
Esite-Micro
Esite-Micro is a robust off-grid power solution for larger telecom towers, often relying on diesel generators. These towers can greatly benefit from Esite-Micro's ability to reduce diesel use. Using advanced energy management technology, Esite-Micro cuts down on the need for diesel fuel, lowering operational costs and environmental impact.
This system is designed for easy installation and maintenance, with scalable modules for quick deployment. Esite-Micro ensures a reliable power supply, making it ideal for large-scale telecom towers in remote and off-grid locations.
Pico-Grid and the Growing Market of Satellite Communications
The satellite communications market is growing fast, driven by the need for reliable internet and telecommunications in remote and underserved areas. Companies like Elon Musk's Starlink are leading this charge.
Pico-Grid provides power directly where it's needed, powering satellite ground stations and receivers in remote locations. This localized power delivery cuts the need for extensive infrastructure like transmission lines, reducing costs and improving reliability.
In their latest MD&A, the company mentioned that Satellite vendors are investing heavily in direct-to-home and direct-to-community connectivity services, driving interest in the Pico-Grid product tailored for these applications. The company also mentioned that currently, design and planning are underway for two major launches with leading global satellite companies, with anticipated volumes starting in 2025 if selected. This positions Pico-Grid as a key player in the future of satellite-powered connectivity.
Clear Blue's Recurring Revenue: Energy-as-a-Service
One of the standout features of Clear Blue Technologies is its innovative Energy-as-a-Service (EaaS) model. This recurring revenue stream is a key strength of the company. Clear Blue doesn't just sell advanced power systems; it also provides ongoing management and maintenance services for these systems through its EaaS offering. This means that every product sold, whether it's a smart, off-grid street light, a power system for cellular towers in remote locations, or a small power solution for satellite communications, generates monthly revenue for the company.
EaaS includes the operation and management of solar, grid, generator, and wind-powered devices, all connected to Clear Blue's industry-leading cloud-based analytics and management platform, Illumience.
As Clear Blue continues to expand its footprint, the recurring revenue from EaaS is poised to grow, making it an attractive feature for investors looking at sustainable and long-term growth in the clean energy sector.
Financial Outlook
I've been following Clear Blue Technologies for many years, and I firmly believe they have some remarkable technology that will soon be in high demand. The company faced a tough 2022, much like many other small businesses. Since 2019, their revenues had been on a promising growth trajectory. However, global supply chain problems hit hard in 2022, causing CBLU's revenues (in Canadian dollars) to tumble from $8.1M in 2021 to $2.6M in 2022. In 2023, sales rebounded to $5.4M, showing signs of recovery.
For the quarter ended March 31, 2024 (Q1 2024), Clear Blue Technologies demonstrated impressive growth and recovery:
Revenue: Q1 2024 revenue reached $808,553, marking a 208% increase from $262,137 in Q1 2023. This exceeded the company's guidance for the quarter.
Recurring Revenue: Recurring revenue made up $300,786 of the total revenue, a 42% increase from $212,004 in Q4 2023.
Gross Profit: The gross profit for Q1 2024 was $338,339, a substantial 263% increase from $93,272 in Q1 2023. The gross margin for the quarter was 42%, up from 36% in the same period last year.
Adjusted EBITDA: The company's Non-IFRS Adjusted EBITDA improved to $(712,325), a 32% improvement from $(1,042,209) in Q1 2023.
Q1/2024 Revenue by Category
Clear Blue's fundamentals have significantly shifted since the end of 2022. The last two quarters of 2023 were particularly strong, showcasing robust growth and a clear upswing in performance. The acquisition of Esite in Q1 2023 and the launch of the Pico-Senti products later that year transformed Clear Blue from a two-product company to a four-product company. This expansion significantly increased their addressable market, potentially making it 5-10 times larger. For instance, while they were previously focused on new rural telecom towers, the addition of Esite-Micro now allows them to cater to virtually all cell phone towers, including retrofit projects, broadening their market reach beyond new installations.
Q1 2024 wasn't without its challenges. Delays in customer orders due to Red Sea shipping issues extended delivery times by 3-6 months, impacting inbound payments. Additionally, an expected $1.54 million SDTC grant for an existing contract was delayed until April due to enhanced government reviews, pushing some orders into Q2.
Overall, Clear Blue Technologies is exceptionally well-positioned to capitalize on the growing demand for advanced, off-grid power solutions. As global electricity demand continues to surge due to population growth, increased use of electric vehicles, and the proliferation of data centers and automation, the need for innovative solutions that alleviate strain on the grid has never been greater.
In my view, any product that helps manage and reduce grid demand will be vital, and Clear Blue's offerings are well-suited to meet this urgent need effectively.
I’m really optimistic about this company. The acquisition of Esite has significantly boosted their revenue and brought in major clients like American Tower.
The company has seen a notable increase in its bookings as of Q1 2024, signaling a strong pipeline for future revenue. Bookings, which include orders and commitments expected to be recognized as revenue in upcoming periods, rose to $2,848,424 by March 31, 2024. This marks a 15% increase from $2,469,846 at the end of December 2023. With delivery anticipated over the next three years, this growth reflects the company's expanding reach and the increasing demand for its advanced off-grid power solutions.
Another promising development involves Clear Blue's close partner, Nuran Wireless. Nuran Wireless is a leading supplier of mobile and broadband wireless infrastructure solutions, focusing on bringing connectivity to remote and underserved regions through telecom towers. Since 2020, Nuran has received orders to roll out over 5,000 sites in Africa alone. However, due to lack of financing, they have only built around 300 of these sites so far. The company has finally secured significant financing, which is crucial for their expansion plans.
Nuran has recently secured $2.5M USD as part of a $5.0M USD loan, which will allow them to resume building tower sites in Africa. This expansion is significant because each of these towers requires off-grid technology for power, a market where Clear Blue's Nano-Grid systems excel. As Nuran continues its rollout, it will likely lead to more contracts for Clear Blue’s Nano-Grid systems. With these tailwinds, I believe Clear Blue is well-positioned for success in the near future, barring any unforeseen global economic downturns.
Portfolio Update
As I wrap up this month's issue, the Nasdaq and the S&P 500 are both down around 3% over the last five days. There's definitely a sense of shakiness in the markets, and it makes me wonder if we’re on the verge of a significant drop, similar to what we saw in 2020 or even 2008.
Most of my portfolio is still in cash, earning a minimum of 4.30% and as high as just over 5.25% in one year GICs. Rates have started to come down since last year, and now GICs yield around 4.6% for a one-year term. To compensate for the lower yields on some of my cash holdings, I’ve been buying income-producing ETFs.
For example, I own ETFs focused on Ethereum (ETHY.TO) and Bitcoin (BTCY.TO), each yielding over 9% and paying out monthly distributions. My most recent purchase was the BMO Covered Call Utilities (ZWU.TO), offering a generous 8.3% yield, also paid monthly. I added ZWU to the portfolio in June at $10.39 CAD per unit. Over the past five years, this ETF has fluctuated between $14.40 and $9.60. Its holdings span 23 companies across the energy, utilities, and communications serivices (telcos) sectors, including Fortis, Emera, Rogers, AT&T, Telus, Enbridge, TC Energy, Duke Energy, and Kinder Morgan, just to name a few. The ETF generates income by selling call options on its holdings and collecting dividends, which it then distributes to unit holders.
Take a look at the chart below to see how the sectors are allocated.
Sector Allocation
Click the sections on the graph
ZWU holds solid companies that provide some of our life's necessities: energy, utilities, internet, and cellular services. I'm pretty confident that its holdings will be around for a long time. It's one of those investments I can buy and forget about for decades.
I added an initial portion of ZWU to my portfolio as one of my “forever” stocks. As interest rates drop, I expect the unit prices to appreciate because lower debt costs mean higher profits for the companies in the ETF. But it's not price appreciation that I am after with this investment. What matters most to me is the income. I plan to hold this ETF well into my retirement for the steady income it provides.
I've added another name to the portfolio in July, and I’ll cover it in the next issue. For now, though, I’m holding off on further capital allocation. With all the geopolitical and social unrest and the US elections just a few months away, it feels like something significant is about to break. The opportunity of a lifetime could be just around the corner, and I want to ensure I have as much cash ready to deploy as possible when that moment arrives.
Portfolio Composition
| As of July 26, 2024 | |
|---|---|
| Category | Portfolio Weight |
| Cash and GICs | 89.55% |
| Speculative Picks | 2.48% |
| Defensive Picks | 7.22% |
| Crypto | 0.75% |
| TOTAL | 100% |
Remember that the content of this newsletter is neither a stock recommendation nor investment advice. This is just something to consider. You can access my watchlist and portfolio through the link below. By clicking the link below you accept all responsibility for any potential losses that might result from buying any of the stocks mentioned in this newsletter.