Tecogen’s Solid Growth Rate and Margins Expected to Keep Up in 2016

Tecogen Inc. (TGEN – $3.80) designs, manufactures and sells industrial and commercial CHP (Combined Heat & Power), or cogeneration, systems that produce combinations of electricity, hot water, and air conditioning.

The fundamental economics of CHP, such as high electric rates, low gas rates, and grid resiliency concerns continue to be in the Company’s favor. These trends are already visible in the Company’s financials. In the first full year as a public company, Tecogen grew its revenues from $19.3 million in fiscal year 2014 to $21.4 million in 2015, an increase of 11%. At the same time, its sales backlog grew by 17% to $11.6 million.

We’re convinced that with the recent launch of the new InVerde e+ CHP and the expansion of the sales efforts these results will continue to improve.

Furthermore, we expect significant news in 2016 from the stationary emissions aftertreatment market. By retrofitting an Ultera, which reduces the emissions of pollutants contributing to smog (NOx, CO, and hydrocarbons) to near zero levels, owners in emission-sensitive areas would be able to utilize their otherwise inactive back-up generators to peak shave their electric use, removing the most punitive kilowatt-hours from their monthly utility bill.

Finally, we’re very excited about Ultratek, the joint venture with a group of strategic investors, to test, verify and develop the Company’s Ultera technology for vehicular applications. The prospect of gasoline engine vehicles, operating with standard engine technology, but realizing fuel cell like emissions is tremendously compelling from a policy and market standpoint. Good progress is being made in the area, and phase I testing by AVL North America is currently ongoing.

In a few months, first results should indicate if the Ultera system can be adapted to automotive engines. It’s clear that if successful, Ultratek will revolutionize the car industry and Tecogen won’t be a $70 million company for much longer.

Tecogen’s gross margins in 2015 were 35.6%, compared with 33.1% in 2014. And in the fourth quarter of 2015, gross margins reached 37.4%, well above the Company’s goal of 35%. This success is expected to continue in 2016.

Based on the intrinsic value of Tecogen’s shares derived from our model, we reiterate our buy recommendation for Tecogen Inc. with a price target of $9.02, which is 142% above today’s stock price.

Download the fourth quarter 2015 Tecogen Inc. Company Report.

Smallcaps.us Advice: Buy	Price Target: $9.41	Latest Company Report (pdf)
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