Rupert Merer (National Bank Financial) discusses investor interest and valuations in the cleantech industry at MaRS on Nov. 19 as part of MaRS Best Practices Special Valuations Series in partnership with the TSX. More event information here: http://www.marsdd.com/events/details.html?uuid=f2771438-817d-4554-aaa2-ef5f12edf6c6

1. MaRS Best Practices
Series
Special
Valuation
Series
Nov. 12th, 2010
MaRS Best Practices
Special Valuation Series
Friday Nov 19th
12:00-1:30pm
Tim Babcock
Director, Listed Issuer Services
TSX Venture Exchange
Rupert Merer
Energy Technology Research Analyst
National Bank Financial (NBF)
Speakers:
More information and registration at
www.marsdd.com/bestpractices

2. Cleantech stocks in Canada
Rupert Merer (rupert.merer@nbfinancial.com)
Jeremy Mersereau (jeremy.mersereau@nbfinancial.com)

3. November 10 3
Required Disclosures
DISCLOSURES:
Ratings And What They Mean:
PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst. Here is a brief description of each: Outperform – The
stock is expected to outperform the analyst’s coverage universe over the next 12 months;
Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to underperform the sector over the
next 12 months.
SECONDARY STOCK RATING: Under Review - Our analyst has withdrawn the rating because of insufficient information and is awaiting more information and/or clarification; Tender -
Our analyst is recommending that investors tender to a specific offering for the company’s stock; Restricted - Because of ongoing investment banking transactions or because of
other circumstances, NBF policy and/or laws or regulations preclude our analyst from rating a company’s stock.
INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using its sector rotation strategy. The three tiered system rates
industries as Overweight, Market Weight and Underweight, depending on the sector’s projected performance against broader market averages over the next 12 months.
RISK RATING: NBF utilizes a four-tiered risk rating system, Low, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In addition
to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial results, share price volatility,
credit ratings, share liquidity and balance sheet quality.
General
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The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based
upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein.
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4. November 10 4
Outline – What investors look for in Cleantech
• What is Cleantech?
• Recent Trends
• Clean Tech company valuations
• Market Opportunities
– Renewable Power
– Transportation
• Investor Trends
• Summary

5. November 10 5
Cleantech - A Canadian Perspective
Canada – small cap, resource heavy
• Renewable power equipment
– Solar, wind power, hydro, geothermal, wave power
• Renewable power utilities
– Operators of renewable assets
• Alternative fuels
– Natural gas, hybrids, electric vehicles, biofuels, fuel cells/H2
• Water
– Water treatment and water utilities
• Waste management
– Recycling, waste to energy, environmental remediation
• Energy Efficiency
– Smart metering, efficient technology, DSM

6. November 10 6
Coverage Universe

7. November 10 7
Investor Trends – VC investment

8. November 10 8
Renewable Power Continues to Grow

9. November 10 9
Transportation – a hot sector
• Driven by US focus on reducing foreign oil
– About 66% of US oil comes from domestic sources (i.e. North
America), down from 2005
– Target further reduction in consumption to reduce importation

10. November 10 10
Transportation – a hot sector
• With 60% of oil in passenger cars and trucks, this is a
target sector for government regulation
– Increase passenger vehicle and truck efficiency
– Biofuels, CNG, LNG, electric vehicles
– Switch to urban transport and trains
Non-OECD to soon surpass OECD countries

11. November 10 11
• A number of factors could drive interest in any sub sector
– Feed-in tariffs / subsidies
– Climate change / energy legislation
– High oil, natural gas, coal prices
– Global conflict
– Technology advances
Valuations impacted by external factors
Oil prices can impact some clean tech stocks

12. November 10 12
• Not a text book of valuation methodologies
• Sometimes use multiple methods as a sanity check
Valuation of Cleantech Stocks

13. November 10 13
Qualitative Valuation Factors
• Early stage companies challenging to value
• Investors more focussed on qualitative factors

14. November 10 14
Multiples generally consistent with market
• Valuations consistent across subsectors. Transportation
highest today

15. November 10 15
Canadian Renewable IPP’s - Comparables
• Canada has great resource potential
• IPP’s pay dividends – investor seek yield
• Multiples are close to historic highs

16. November 10 16
• 10-12 GW expected over next 5 yrs
– Provincial FIT and RFP for wind, biomass, hydro, solar
– >20 year contracts at very high prices
– Federal CCA >50% depreciation per year for renewable
assets
– Large project investment opportunity ($2-4 mln/MW)
– Estimated investment >$30 Billion by 2015
Canadian Renewable IPP’s - Growth

17. November 10 17
• Industry consolidation
– Utility takeovers (TA buys KHD, FCE-PPX)
• Buying growth with cost of capital and tax advantages
– RFP’s running dry after major awards in BC and ON
• Most IPP’s looking for shovel ready projects for growth
Canadian Renewable IPP’s - Consolidation

18. November 10 18
• Project permitting a challenge (NIMBY’s)
• Increasingly competitive market
• Capital tough to find for early stage companies
• Low gas prices and low demand = low power prices
• Potential backlash from public over rising cost of power
with renewable energy
• Government RFP’s could slow down
• Export market is uncertain
Canadian Renewable IPP’s - Risks

19. November 10 19
Wind in Ontario – A case study
• With growing wind power and reduced coal, the grid will
become more challenging to manage
• Anticipate increasing smart grid tech (TOU meters, DSM),
improved transmission, more gas fired generation, better
weather prediction, higher power prices
December 2009 Wind Production2009 Generation Mix
MW
Source: Ontario IESO

20. November 10 20
• Valuations are high
– Anticipation of high growth
– Competition will be strong
– OEM’s are tough to beat (cost driven sector)
– Smaller tech companies with OEM channels more likely
to be successful
– Sector will remain news driven
– US legislation most important factor in near term
Transportation – a hot sector

21. November 10 21
• Sector has long term growth ahead
– Governments will continue to mandate higher efficiency
• Efficiency policy is fuel neutral
– Alternative fuels will increase
• Mandates for biofuels
• CNG and LNG do not need subsidy to grow
– One of largest area for VC funding right now
• More IPO’s coming with focus on efficiency
Transportation – a hot sector

22. November 10 22
Private Company – Opportunities for new issues
• Can be tough to bridge “pre-commercial gap”
• Public market investors more conservative today
• Less appetite for venture risk
• Want to see management with “skin in the game” and
“bootstrapping”
• Need to have visibility on market potential for company
• Want to see a lead investor close to company
• Number of Canadian VC’s in clean tech
Source: SDTC

23. November 10 23
• Tell your story - consider help of IR firms
• Sell and buy side like to be involved early
– A number of sell/ buy side firms follow clean tech
– Analysts prefer to follow companies for a long time
before recommending/ buying them
– Mutually beneficial relationship w/ street before listing
• Return to street often or call with significant
updates
• Never over promise or hype opportunity
Private Companies and “the Street”

24. November 10 24
Selected Institutional Account Relationships
24
NBF Institutional Distribution System
San Francisco
Vancouver
Calgary
Montreal
Boston
New YorkToronto
London
Geneva
Zurich
Paris Frankfurt
Global SRI’s in Cleantech
• Dedicated Cleantech Investors in Canada and overseas
– Small caps get more attention in Europe than non-clean tech peers
• Typically, SRI’s (socially responsible investor) are less concerned with
liquidity as have limited investment universe
– Universe shrinking with consolidation / market pull back. KHD, XTX, PPX,
INE bought, some delist or decline (BLD, P, EF, VRB, TIM, ISE)
– Definition of clean tech is expanding

25. November 10 25
• Cleantech in Canada
– Smaller market cap “venture” stocks
– Ample resource potential for export to US
• Valuations mostly reasonable today
• Renewable Utilities –predictable cash flow
– Government backed growth could slow
– Natural gas is a clean and necessary fuel
• Transportation – remain hottest sector
– Oil prices and energy security keep at forefront
– OEM’s and large companies tough to beat
• Dedicated capital can be found for Cleantech
– Though harder to find today
Summary