Hydrodec Group’s recent history is similar, if not identical, to that of another clean tech AIM-listed minnow we wrote about recently called Eden Research. Both companies went through available funds as they struggled to establish commerciality for their output. They encountered technical problems with their innovative products or had to overcome regulatory hurdles along the way. The result in both cases was a sharp decline in their share prices.

Hydrodec joined AIM in 2004 and has been involved in a number of different renewable/alternative energy projects over the years. But its core business has become a clean-tech, oil re-refining group with operations in the US and Australia. It applies proprietary technology to re-refine used and contaminated waste oil to produce, market and distribute its flagship SUPERFINE transformer oil and napthenic base oil.

Last November we wrote about how the share price had collapsed during the course of 2016 and stayed collapsed for a good part of 2017. The reason was the company had to grapple with a series of legacy technical problems dating back to 2013 and centring on both its main facility in Canton in the US and its Boman plant in Australia. The problems severely curtailed output.

However, the interim results for the six months ended 30 June 2017 released on 25 September 2017, indicated that the group had started to get on top of its troubles by late 2016 and the recovery had continued and gained momentum through the first half of 2017– albeit slowly. Nevertheless, the share price fell 12 per cent to 1.64 pence on the day of the interims release.

Why did the share price fall?  It slightly baffled the management. A spokesman told Greenbarrel at the time: “It’s a bit of a mystery Perhaps investors were looking at the constraint the shareholders had to contend with–the shortage of feedstock”.

Or maybe it was something else. For the first half of 2017 there was a positive group earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$26,000, the first positive EBITDA generated by the group since its inception.

Also the statutory loss for the period was down to US$2.6million from US$5.3m in the comparable six months in 2016 on revenues 11 per cent higher at US$9m (including discontinued operations). Some commentators took this to mean in spite of these positive bits of news, perhaps investors were wearying of continual losses and that the talk of a recovery remained a chimera.

All feelings that Hydrodec is chasing an impossible goal of recovery though, should be well and truly dispelled by the company’s Pre-close Trading Update for the year 2017 released on 29 January 2018. It said Group EBITDA was approximately US$0.45m, the first positive full year EBITDA in the group’s history and a significant improvement of US$1.75m on the prior year (2016: EBITDA loss of US$1.3m).

Despite lower volume sales (29.3m litres against 33.3m litres) because of feedstock constraints, revenues increased by 6 per cent to approximately US$17.8m. This revenue increase was driven by improved pricing and sales mix. The mix between higher margin SUPERFINE transformer oil and lower base oil went up to 52 per cent in 2017 in favour of transformer oil, against 40 per cent in 2016. Gross unit margins increased substantially to 14 per cent (2016 5.2 per cent).

Further improvements in the sales mix (60 per cent for transformer oil) are expected in 2018. At the Canton facility, by far the company’s main operation, they are hoping to increase utilisation rates to 70 per cent against 61 per cent in 2016.  In 2017 there was a first sale of carbon credits in respect of credits generated by production in 2013, with a strong potential pipeline for further sales in H1 2018 including vintage credits.

For all these positives, investors still do not seem yet to be biting. The share price last evening was 1.53p against a 52-week low of 1.43p. However, when the interims were announced last September broker Canaccord set a target price of 3p. The share price has been 3.10p in the past year, so there could be better times ahead.