There Is Hope With MagneGas Corporation (NASDAQ:MNGA)

The use of green energy has been a hot topic globally given the effects of global warming in the world today. Companies all over are working tirelessly to come up with better solutions that can reduce pollution thus mitigate the effects of greenhouse gases.One company in particular, MagneGas Corporation (NASDAQ:MNGA), has come up with a solution to this, producing greener energy solutions within the USA, a move which is expected to benefit them greatly given the above talk on pollution; this has not been the case.Shares of MNGA have plummeted significantly since November 2016 painting a rather grim picture of future company prospects as can be seen in the chart below. MNGA Daily ChartHowever, we would like to propose a new narrative in this piece, one that tells to the company’s positive future outlook as well as a new strategy adopted that will catapult them into higher value generation as well as financial growth.Prior to this, however, it would be important to introduce the company to the reader.MNGA: An OverviewFounded in 2007, the Tampa-based company is a player in the energy sector, providing “greener” solutions through use of natural alternatives.They pride themselves in being a technology company that utilizes a plasma based system for the gasification and sterilization of liquid waste. From this process, they produce MagneGas®, a natural gas alternative and metal cutting fuel made from liquid waste which can be used for metal cutting, cooking, heating or powering biofuel automobiles.Moreover, MNGA’s patented Submerged Plasma Arc Gasification™ process gasifies liquid waste, creating a clean burning fuel that is essentially interchangeable with natural gas, but with lower greenhouse gas emissions. They own the intellectual property for these products for the territories of North, South and Central America.With the above background in mind, their core business has been the sale and distribution of the product, in addition to selling their licensure for production of liquid waste, through the above-named territories with the vision of growing past the United States.This has so far been achieved with the help of independent distributors as well asEquipment Sales and Services, Inc. (ESSI) which MNGA acquired in October 2014 for $3 million. ESSI is a full-line seller of industrial gases and equipment for the welding and metal-cutting industry and has been spearheading MNGA’s campaign in their main operating environment.Expansionary StrategyManagement of MNGA have found this not to be an adequate value addition and have opted to venture out into other markets in a bid to achieve their global outlook. Over the period till October 2017, they have made great strides towards expanding geographically as they tap into untapped markets.In February 2017, they formed two subsidiaries: MagneGas Energy Solutions LLC and MagneGas Welding Supply LLC, a move which was followed closely by the formation of three more subsidiaries: MagneGas Real Estate Holdings, LLC, MagneGas IP, LLC and MagneGas Production, LLC in March. These subsidiaries were meant to operate in as well as grow business in the State of Delaware. They have also expanded to the Lakeland and Sarasota.The big news for them, however, has come over the period since September 2017.First, they announced a bid to acquire a San Diego Industrial Gas distributor which generates over $1 million in annualized revenues in a move which analysts forecast would raise their revenues by about 28% as compared to 2016. They went further to announce a second bid to acquire a Louisiana and Texas Industrial Gas Distributor which generates $1.6 million in annualized revenues. This will see a further 47% increase in their revenues as compared to 2016. They expect these deals to close in October 31, 2017 and on the end of 2017 respectively.Scott Mahoney, CFO of MagneGas, commented on these deals saying:

"This acquisition marks the next step in our acquisition strategy. We have a clearly defined plan to expand our footprint in each of the major markets for industrial gas sales across the US, including Texas and California. We took our first step in this process last week with our announcement of an LOI to acquire an industrial gas distributor in the San Diego market, and we are pleased to demonstrate further progress in the Louisiana and Texas markets as well. We believe that making modest investments in high growth markets, combined with the competitive advantage of MagneGas2® as a powerful lead-in product will enable us to continue to grow well above the industry norms. We see this as a highly accretive transaction that will impact top line growth and bottom line profitability in 2018 and beyond."

Source:Second, they announced the development of a downstream link that virtually eliminates waste from MagneGas production process. This, according to them, would boost their efficiency and increase their competitive advantage in the market.Finally, in a move that accentuated their view on conquering the globe, they announced a cumulative $3.4 million gasification unit to produce MagneGas in Europe. The move that showed the demand for clean energy globally has opened up MNGA to the globe, starting with Germany, and created pathways for them to achieve their goals while solidify their revenue base into the future.The company’s CEO Scott Mahoney was quoted saying:

“…We see this relationship as quickly becoming a meaningful source of revenues and cash flow for many years to come."

Source:These chain of good news paints a very lucid picture of the company’s growth potential into the future, which raises the question: Why the downturn in share price? We seek to answer this below.Why the downturn?The exciting picture painted above has not been exhibited in their income or financial position in the past with the company. To add a bit of perspective, the $5.3 million company has been posting huge losses and negative cash flow, a factor which may have led to the plummeting of their share price over time. This is seen in the over $2.2 million loss made in the period till June 2017 in addition to the over $2.3 million operating cash outflows over the same period.However, there is hope. This position, though grim, is a significant improvement from their previous year’s performance which included an over $5.15 million loss in addition to a $4 million cash outflow. This was mainly due to the change in the fair value of their derivative liability which made gains of over $1.4 million.In line with their strategy, they reduced their research and development costs from $167,963 to $26,114 for the quarter ended June 2016/17 respectively. This was proposed by their CEO in an ABJ interview where he said:

“MagneGas has… shifted its focus away from long lead time research and development projects and toward near-term commercial growth opportunities, in order to develop a cash-flow positive business that will ultimately allow it to self-fund its R&D in the future”

Source:The above improvement does not signify good numbers, on the contrary, these would scare any rational investor away. However, the investments made as well as the company’s adherence to their set strategy prove what the article has been stating: they are going to rise up in the near future.ConclusionThe plummeted share price presents the best opportunity for an investor to jump into the MNGA bandwagon. As seen in the rest of the article, MNGA is poised to revamp itself and add value for its shareholders into the future.We will be updating our subscribers as soon as we know more. For the latest updates on MNGA, sign up below!Image courtesy of Oscar R.S. via FlickrDisclosure: We have no position in MNGA and have not been compensated for this article.