SR-Compilation-One

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31 January 2016 Est. 2015Off the Beaten Path Research & Opinions
scandiumresearch.com
Wine Investing
We tried becoming wine investors in one week -
these are the conclusions
Page 2
Negative Prices
The need for a solution to negative
energy prices.
Page 9
Light & Start-Ups
Bioluminescence: „What if we no longer need elec-
tricity to produce light?“
Page 6
Growth in the Oil Sector
Generating 30% revenue growth per annum (past 5
years) in the energy sector
Page 13
Edited by Giovanni Perini

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31 January 2016 Est. 2015We tried becoming wine investors in one week
Co-Editors
Nikita Goldin
Louis Csango
Contributors
Keval Dattani
Florian Unger
Ghida Esber
Patrick Hasani
Karl Nehme
Vincent Tsang
Why invest in wine at all?
The case for wine as an asset class can be put in one sentence.
The supply of investment grade wine is strongly confined
and further decreased by consumption in time. Meanwhile
demand is spurred by increasing global wealth and as the
wine ages. This ensures steady value appreciation.

The tangibility of this asset takes your worries about
inflation and currency fluctuations, while its classification as
“wasting asset” can exempt you from capital gains tax.
Diversification: Low correlation with other asset classes
can add value to a traditional bond/equity portfolio.
Low volatility: Fine wine produced the second lowest volatility of annualized monthly returns
among all major non-fixed income asset classes between 2001 and 2011.
Superior risk adjusted returns: Likewise in the same period and sample, fine wine produced
the second best risk-adjusted return.
A tolerable downside of opening some fine wine.
How to invest in wine: Buy-and-Hold
Trellis lists five factors you should look at when evaluating a fine wine for investment:
– Produced by an instituition with quality and prestige
– Possibility to age for at least 25 years, maturity
occurring after the 10th year
– Consistent and documented history of substantial
price appreciation over a decade or more
– Sufficient quantities so that it can be bought and
sold on the secondary market. The UK fine wine
market is the most liquid in the world.
– Has attained a score of at least 95 points by one or more of the
principal worldwide wine critics.
Does this strategy work? If you would have invested in the 200 wines that scored the highest on these
five factors, you would have made annual returns of 13.62% between 12/1993 - 05/2013. See below:
We tried becoming wine investors in one
week - these are the conclusions
Pedigree
Longevity
Price Appreciation
Liquidity
Critical Accalim

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How to invest in wine: small scale & trends
When starting your own portfolio on a smaller scale, specialists
recommend to have a majority of over 80% in the five First Growth
Bordeaux wines, which makes sense as they provide over 80% of
the stock of investment grade wine, hence providing the necessary
liquidity and set the general market trend.
Yet beware, those blue-chips are not risk-free either. With Hong
Kong’s lift of import duties on wine, the First Growth’s saw a
bubble-like increase in price that burst and hurt investors. Lafite‘s
high Parker score and brand-appeal made it a prime target of Chinese
demand perfectly illustrating the price bubble.
“This is also the point about having a diversified investment portfolio. No-one is smart
enough to know exactly what is going up or down next. Nor does anyone know when
a market has reached a top or a bottom. What a savvy investor does is figure out if
there is a coherent investment case and if the answer is yes then he or she steps in and
waits. The trouble with most people is the waiting bit. “
We tried becoming wine investors in one week

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Minimise costs to enhance returns
One of the most unattractive features of fine wine is the high costs associated with dealer fees. To adress
these, we suggest low frequency of buying and selling. This requires to be able to buy the right fine
wines and hold them for a long time.
Furthermore, your whole investment is at risk due to fraud and improper due diligence. For example
one fraudster sold off numerous bottles of 1945 Domaine de la Romanee Conti for $100,000 each; as
they were fake investors lost their whole investment.
Insure yourself to cover this downside risk. Wines deteriorate over time and improper storage can result
in your investment becoming worthless, so insurance is crucial.
Better quality future vintages can reduce the value and relative quality of your wine. The 2008 Angélus
Bordeaux scored 91 however both 2009 and 2010 scored 97 meaning that the relative value of this vin-
tage fell by 25%. Ensure you stay informed regarding future vintages to stay ahead of this risk. Wine
investment has many risks however with insurance, due diligence and research these can be easily
avoided.
These are our conclusions
• Wine is a good diversifier, is tax-efficient and has good risk-adjusted returns
• Buy and hold is a safe bet, yet it is hard to get exposure to all investible wines
• Be aware of trends and correlations when investing on a smaller scale
• Keep the majority in liquid First Growths as backbone to get general market exposure
• Acknowledge the trend of upcoming Second Growth wines as a source of return
• Identify mispriced, upcoming and less correlated quality wines from the New World
• Minimse portfolio adjustments - stay for the longer term and insure yourself
Undoubtedly, the primacy of the First Growth has been shaken
after the bubble. A resulting trend is a switch from brands to
searching for mispriced value ex-Bordeaux. Take as example the
Opus wine, harvested in the US and owned by the Rothschild
family. Such less liquid quality wines can be a good addition to a
First Growth-centric portfolio.
An even more decorrelated approach is to simply add a portion
of New World wines. While the Liv-ex 50 tracking the prime
French wines fell 25% in the last five year, the Liv-ex “Rest of
World” including Spain, South America and US grew by 30%.Opus 2005 outperforming Lafite 2005
As Warren Buffett once said: “Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But
Sir Isaac’s talents didn’t extend to investing: he lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the
movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone
on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

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E-mail: info@scandiumresearch.com
website: www.scandiumresearch.com
facebook: www.facebook.com/scandiumresearch
Imprint
This document was produced by Scandium Research for information purposes
only and for the sole use of the recipient. The analysis contained in this docu-
ment has been procured, and may have been acted upon, by Scandium Research
for their own purposes, and the results are being made available to you on this
understanding. To the extent permitted by law and without being inconsistent with
any applicable regulation, Scandium Research does not accept responsibility for
any direct or indirect or consequential loss suffered by you or any other person as
a result of your acting, or deciding not to act, in reliance upon such information,
opinions and analysis.
The information in this document is not intended as an offer or invitation to buy or
sell securities or any other investment or banking product, nor does it constitute a
personal recommendation. Nothing in this material constitutes investment, legal,
credit, accounting or tax advice, or a representation that any investment or strate-
gy is suitable or appropriate to your individual circumstances. The price and value
of investments mentioned and any income that might accrue can go down as
well as up, and you may not recover the amount of your original investment. Past
performance should not be taken as a guide to future performance. Where invest-
ments involve exposure to a foreign currency, changes in rates of exchange may
cause the value of the investment, and the income from it, to go up or down. The
information in this document is believed to be correct but cannot be guaranteed.
Opinions and forecasts constitute our judgement as at the date of issue and are
subject to change without notice.
Disclaimer
2016 <http://www.invin.io/> [accessed 31 January 2016]
E. Ricardo, Mark, The Case For Investment Grade Wine As A Strategic Alternative Asset
Class, 1st edn (Alexandria, Virginia: Trellis Fine Wine Investments, LLC, 2012), pp. 1-10
<http://www.trelliswineinvestments.com/wp-content/uploads/2011/10/Trellis-White-Pa-
per-Investment-Grade-Wine-September-20121.pdf> [accessed 31 January 2016]
Exchange, Liv-ex, “Home”, Liv-ex.com, 2016 <http://www.liv-ex.com/home.do> [accessed
31 January 2016]
Thedrinksbusiness.com, “The Rewards Of Patience”, 2016 <http://www.thedrinksbusiness.
com/2016/01/the-rewards-of-patience/> [accessed 31 January 2016]
Thedrinksbusiness.com, “Top 10 Fine Wine Trends Of 2015”, 2016 <http://www.thedrinks-
business.com/2016/01/top-10-fine-wine-trends-of-2015/> [accessed 31 January 2016]
Your Guide To Fine Wine Investment, 1st edn (Redhill, Surrey: Vin-X Limited, 2013), pp. 1-34
<https://www.vin-x.com/documents/brochure.pdf> [accessed 31 January 2016]
Discussions with producers, investors and brokers
References

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31 January 2016 Est. 2015Bioluminescence:“What if we no longer need electricity to produce light?“
Contributors
George Wynne
Michael Morvan
Right now, the cost of launching a bio-tech start-
up is decreasing faster than Moore’s Law predicts.
Additionally,thetimetakenfromfundingtoproduction
is shorter than ever for new companies meaning
that that bio-tech industry has exciting prospects.
Current situation
• During COP 21 that recently took place in Paris, growing
concerns regarding our resources were discussed. Indeed, the
average electricity consumption of a family is around 6,762
kWh per year and this number keeps increasing since techno-
logy is slowly taking over every paper support.
• According to British Astronomical Association (BAA) and the Commission for Dark Skies, half of the UK
population cannot see many stars due to light pollution. Since 2010, local authorities collectively spent £500m
on street lighting and that accounted for 5% to 10% of each council’s carbon emissions and the number one
light pollution source.
• Other bioluminescence start-ups have gained traction recently, most notably Glowing Plant, which raised
$500 million on Kickstarter and received support from Y Combinator. This is interesting since Y Combinator
usually focuses on software and would be looking to create a profit from their involvement.
Overview of Technology
Bioluminescence is a chemical reaction regulated by a gene, enabling living organisms to produce light na-
turally. Over 90% of marine organisms are bioluminescent (such as algae, jellyfishes, squids, and shrimps).
By cultivating the bacteria that possess the bioluminescent property which can be found in squid cells, it is
possible to recreate a product that will allow the bacteria to naturally produce light.
However these new developments bring about concern regarding regulation. There have been concerns for
a long time with the production and distribution of Genetically Modified Organisms (GMO), in particular in
2012 a moratorium was requested by 116 organizations to prohibit the release of synthetic organisms. The
current development of biolumiscience has been met with similar apprehension, the aforementioned start-up
Glowing Plant received criticism during its Kickstart campaign for their potentially unregulated practises.
Bioluminescence:
„What if we no longer need electricity to produce light?“

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The eponymously named Glowing Plant’s product is a small glowing plant which is to be used as a house plant
and to stimulate awareness among consumers about renewable light sources. Another company with a similar
ornament product is Biopop with their Dinos illuminating dinosaur. Again, this has limited scope and is inten-
ded to be more of a ‘stocking filler’ product.
Case study
A company that caught our eye was Glowee which was formed in 2013 as a result of a student ran project
and uses live bacteria, which is non-pathogenic and non-toxic, to create naturally occurring light. The product
has the property of being transparent during the day and luminescent at night; Glowee proposes using it in
installations such as shop fronts, urban landscape and signs. The company claims to have refined their product
to be able to produce light equal in intensity to a lit candle and able to shine for 3 consecutive days and hope to
extend that duration to one month in 2017.
They won 100,000€ at Concours Genopole in 2015 and recently closed a small round of funding for one of its
objectives of 40,000€ (136% of the initial objective) and aims to create its first shop display product in January
2017 and create its first urban landscape instillation in 2018.
What is exciting about this company is that its integration into infrastructure has the potential to be seamless
and efficient. In particular, it solves the problem presented by the law in France which states shops cannot use
front lighting during night time. The team of 10 has future aspirations of being able to be implemented into both
aesthetic and functional solutions and to push the boundaries of renewable energy solutions.
Future Outlook
• Today more than 2 billion people have not access to electricity depending on geopolitical reasons (warzones,
fragile economy) or geographic (isolated areas, dispersed habitations). Bioluminescence could bring a bright
solution to those in the need.
• Bioluminescence will allow countries to benefit from a cold light source that will prevent light pollution
which is becoming a serious concern for some countries.
• Regulation of these developing genetic manipulation practises will have to be established which could prove
limiting for these new companies.
• Development of large scale solutions appears
to be the most viable for engagement with
regulatory bodies, due to the benefits that they
provide areas in which they are installed.
Bioluminescence:“What if we no longer need electricity to produce light?“

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Imprint
Disclaimer
BBC News, “Light Pollution ‘Saturates’ UK’s Night Skies - BBC News”, 2016 <http://www.bbc.co.uk/
news/uk-17665397> [accessed 27 January 2016]
Britastro.org, “The Commission For Dark Skies - The Issues - Overview”, 2016 <http://www.britastro.
org/dark-skies/cfds_issues.php?topic=about> [accessed 30 January 2016]
Cutler, Kim-Mai, “Glowing Plant Is One Of Y Combinator’s Very First Biotech Startups”, TechCrunch,
2016 <http://techcrunch.com/2014/08/11/glowing-plant-is-one-of-y-combinators-very-first-biotech-
startups/> [accessed 28 January 2016]
EDF, “L’énergie De à Z”, 2016 <https://www.edf.fr/groupe-edf/espaces-dedies/l-energie-de-a-a-z>
[accessed 29 January 2016]
Glowee.eu, “Glowee, Enlightened By The Sea”, 2016 <http://www.glowee.eu/> [accessed 26 January
2016]
L’éclairage Public Parisien, 1st edn, 2016 <http://www.energy-cities.eu/db/paris_1329_fr.pdf> [ac-
cessed 26 January 2016]
Lukacs, Martin, “Kickstarter Must Not Fund Biohackers’ Glow-In-The-Dark Plants | Martin Lukacs”, the
Guardian, 2013 <http://www.theguardian.com/environment/true-north/2013/jun/06/kickstarter-money-
glow-in-the-dark-plants> [accessed 24 January 2016]
Planetoscope.com, “Planetoscope - Statistiques : Consommation Mondiale D’Ã©nergie (En Tep)”,
2016 <http://www.planetoscope.com/Source-d-energie/229-consommation-mondiale-d-ener-
gie-en-tep-.html> [accessed 28 January 2016]
Wikipedia, “Energy In The United Kingdom”, 2016 <https://en.wikipedia.org/wiki/Energy_in_the_Unit-
ed_Kingdom> [accessed 28 January 2016]
References
Bioluminescence:“What if we no longer need electricity to produce light?“

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31 January 2016 Est. 2015The need for a solution to negative electricity prices
Co-Editors
Pietro Theotokis
Contributors
Jose Guerrero
Keval Dattani
Karishma Shah
Johannes Krug
Lukas Gataveckas
Marc Lai
Tom Sz
Sam Botbol
Amina Musaeva
Alex Ben-Nathan
Charles Fournel
The need for a solution to negative electricity prices
Negative electricity prices
Negative power prices have become an increasingly common phenomenon in the electricity markets. In Europe
it is a regular occurrence in France, Germany, Austria, Switzerland, Belgium and The Netherlands. On days
when renewable energy sources, such as wind power, produce more electricity than is being consumed, the
cleared market price is negative.
You might be thinking, how on earth is that possible? The problem arises from the lack of storage. As power
grids have a limited capacity, they can only hold so much electricity. Normally production would be reduced
in order to match the input of electricity into the grid with the demand. However, in the case of wind farms this
cannot be done – the wind cannot be stopped.
Therefore, the grid doesn’t purchase the energy off the producers, who also have limited storage. They then must
sell and move this electricity on as quickly as possible, otherwise a very costly and damaging process called
Cascading failure occurs. When a node in a power grid becomes overloaded with excess electricity and fails,
nearby nodes must then take up the slack for the failed component. This in turn overloads these nodes, causing
them to fail as well, prompting additional nodes to fail one after another in a chain reaction.
How often does this occur?
Luckily, not very; on average bi-annually when renewable energy production is very high and demand is low.
For example, Germany on the 11th of May 2014 is a good, generic example of negative prices. On that day wind
power produced 21.3GW of energy, hydropower 3.1GW and biomass 3.7GW. Including conventional power
plant production, this resulted in an overproduction of around 10GW and as a result prices fell below -€60
megawatt per hour (MW/h).

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So negative prices for electricity sounded a bit insane before, right? After reading and understanding why it
happens, it appears a logical clearing price for the market. However, it still seems a tad ridiculous and a prob-
lem that needs to be addressed. In the future it could be solved through R&D and investment in Solid-State
Batteries.
Solid State Batteries
Lithium-ion batteries have been around for around 25 years and during that time they have provided a solid base
for innovation making the rechargeable battery safer and more efficient. However, new innovations and a need
for faster, more efficient and longer-lasting batteries has risen. Solid-State Batteries (SSBs), which are currently
being developed, might offer a solution at a consumer level as well as at a commercial one.
Most current battery technology contains a liquid electrolyte combined with a solid one to create the chemical
reaction necessary to store energy. On the other hand, solid state batteries are composed only of solid electro-
lytes. See the graphic below for a visualisation of how these batteries are different. Ilika (AIM: IKA), a leading
researcher and innovator in this field, states that relative to lithium ion batteries SSB are non-flammable, have
twice the energy density, quadruple the charge retention and sextuple the charging speed. Automotive and
tech firms have also taken interest in the development of this technology. Dyson acquired Sakti3, a U.S. based
company, for £90M, and has gained interest from General Motors Ventures, a subsidiary of GM, making a $3.2
How do they work?

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How would they alleviate the problem of negative electricity prices?
SSBs are also a good candidate to replace current grid storage facilities in developing countries. The increased
durability, resistance to heat and low cost could make this technology ideal in even the harshest environments.
With current average battery prices at around $600/kWH, a less expensive alternative offered by SSB could,
according to Sakti3, bring the price down to $100/kWH. The University of California Berkeley reported that
“grid-scale energy storage is a vital component of renewable energy solutions and crucial to reducing green-
house gas emissions and climate change mitigation.” Seeo, a California based company, is looking to create
commercial solutions to residential energy storage problems. Locating the generation assets closer to the
consumer there is potential to cut energy transmission costs. Furthermore, in areas such as California that are
quickly running out of water, solar and wind is become the best alternative to hydroelectric power.
How to get exposure to SSBs - Ilika
This is a company that invents and tests materials in laboratories, which then can be scaled-up for everyday
commercial use. One of the areas it is pioneering in is SSBs. After several rounds of funding, it made its IPO
on the London Stock Exchange. The company has already acquired patents in the UK, Europe and most im-
portantly, with help from Toyota, in China, where these batteries might one day be produced cheaply. When it
launches its first product in March 2016 and seeds the market for Original Equipment Manufacturers (OEM),
its share price will likely rocket. Ilika is an investment for the long-term equity investor, a buy-and-hold
strategy that will produce exponential returns if and when SSBs take-off. The need for these batteries is here,
people just have not realised it.
Risks to our view
In the short-term, with fossil fuel prices, especially oil, very low, competition in the transport industry
will be difficult. Furthermore, considering how innovations are still being made in low-cost Lithium-ion
batteries, SSBs will have a tough time competing with the existing options for now. Moreover, Google is
equally rumoured to be rapidly working to develop its own SSB, maybe even to use it in its own vehicle or
future hardware developments. With Toyota and GM as the two largest manufacturers in the U.S. by market
share, it is fair to assume that they might be competing to be the first to use SSBs. On balance, irrespective
of whether Ilika sees intense competition from the likes of Toyota, Google and GM, the market as a whole
will surge when investors come to terms with the high efficiency of Solid-State Batteries in comparison with
current battery technology.

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Imprint
Disclaimer
References
The Economist, “How To Lose Half A Trillion Euros”, 2013 <http://www.economist.com/news/brief-
ing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros>
Morris, Craig, “German Power Prices Negative Over Weekend”, German Energy Transition, 2014
<http://energytransition.de/2014/05/german-power-prices-negative-over-weekend/> [accessed 31
January 2016]
Stagnaro, Simona, “The Case For Allowing Negative Electricity Prices - Energypost.Eu”, EnergyPost.
eu, 2014 <http://www.energypost.eu/case-allowing-negative-electricity-prices/> [accessed 31 January
2016]
Londonstockexchange.com, “Half Yearly Report - RNS - London Stock Exchange”, 2016 <http://www.
londonstockexchange.com/exchange/news/market-news/market-news-detail/IKA/12654689.html>
Ilika.com, “Solid State Batteries | Ilika - Accelerated Materials Innovation”, 2016 <http://www.ilika.com/
work-we-do/case-studies/solid-state-batteries> [accessed 31 January 2016]
MIT News, “Going Solid-State Could Make Batteries Safer And Longer-Lasting”, 2016 <http://news.
mit.edu/2015/solid-state-rechargeable-batteries-safer-longer-lasting-0817> [accessed 31 January
2016]
Seeo, Inc, “Solid State Batteries For Grid-Scale Energy Storage”, 2015 <http://www.energy.ca.gov/
2014publications/CEC-500-2014-101/CEC-500-2014-101.pdf> [accessed 31 January 2016]

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Co-Editors
Dominic Solomon
Contributors
Karim Foad
Paulo Costa
Dominic Solomon
Stavros Antonopou-
los
James Patten
Connor Ludden
Milan Shah
Katya Gordyukhina
George McWhirter
Gunnar Janson
Toluwani Adejuyig-
be
Callum Beale
Hung Nguyen
Rami Bazergan
Nicole Chan
Shaun Daly
Benjamin Niven
Is it possible to generate 30% revenue growth per annum over the past
five years - and operate in the energy sector?
Is it possible to generate 30% revenue growth per annum over
the past 5 years - and operate in the energy sector?
Lighting a match sounds easy but have you ever thought
about how flames are lighted in an oil refinery for examp-
le? And what would happen if these flames were to go out
– how do these re-ignite again? What if you are told that,
conventionally, a worker would have to manually re-igni-
te the spark with a burning rag on the end of a long stick?
Would you believe this to be possible in the 21st century?
Thankfully there is a solution to this and it comes through
Profire.
Profire is an oilfield technology company. Their mainpro-
duct is a burner management system, which automatical-
ly re-ignites. This burner is essential to equipment during
the production and transportation of oil and natural gas. The manual process of lighting a fire is not
only extremely hazardous, but requiring the worker to first discover that the ignition flame has gone
out can often result in unnecessary downtime for the process – thus creating inefficiencies in the
production process.
What is Profire trying to achieve?
Profire’s Burner Management Systems mission is to improve production and transport of oil and gas.
The firm has designed a diverse product line to meet the demands of a wide array of oilfield vessels.
Each is designed for a slightly different use and environment, but ultimately helps monitor and/or
manage the flames used in oilfields. Profire recently extended their product line to include crucial
chemical management systems (CMS), by completing an acquisition in November 2014. They also
sell complementary products (e.g. 4-20mA/Modbus expansion cards, Air-plate) that help enhance the
burner management of customers.
What are Profire customers looking after?
Profire’s market consists of distributors, oil/gas producers, oilfield servicers, and OEMs. There are
three main drivers for their product sales, in both the BMS and CMS market: first, improved efficiency
(6-12-month payback), second, improved safety, and third, improved compliance (state and industry).
Scandium is interested in the future of these areas and how they will affect Profire’s revenue stream.

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Sales over the past five years have grown at an impressive rate of 29.7% per annum. However, over the
past year where oil has bounced around $50/bl, revenue has fallen 48.50% and EPS -62.50%. This could
however imply that the negative impact of the oil price has been overstated in the share price because
the fall in current and expected revenue and earnings does not compensate for the fall in share price.
What is Profires value?
Profire has very low expectations for next year’s revenues (51 million USD FY2015 to 25-30 million
USD 2016E). Therefore, in revenue projections for 2016E we have used the mid-point of 25-30 million
(27.5 million).
Although Profire faces the global economy downturns, regulation can help to boost revenues, as we
shall allude to later. This means products such as BMS will boost the company’s revenues in the event
of a regulation implementation for oil fields.
The main takeaway from our DCF valuation is that since anticipated revenues will fall to 25-30 million
USD in 2016, this will affect free cash flow. However, we believe free cash flow will come back at pre-
vious years levels and eventually exceed 2015 FCF.
With these expectations, we see a firm value around 351 million USD and assuming no more shares will
be issued, this brings the intrinsic value per share to 6.6 USD dollar, a 733% premium to current price.

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31 January 2016
Competitive Edge - Low-cost, user friendly and safe.
A Burner Management System (BMS) is a safety solution for power generation facilities. It allows the
control and monitoring of burner units that allows the safe start-up, operation, and shut down of the
multiple-burner furnace section of a boiler. Profire offers safe, low-cost BMS products, which are less
manual-driven and more compliant with regulations. Most companies manufacturing BMS use pneu-
matic valves to provide temperature control and re-ignition: the latter is costly and potentially dange-
rous. Profire’s most recent products have a user-friendly display and interface, with simplified setup and
multi-burner support, creating a cost saving environment which can support up to 12 separate burners.
Profire owns 70% market share in the oilfield emissions sector with its three main competitors being
ACL (Alberta), Platinum (Texas) and Surefire (New Mexico), and of these, it is the only public company.
What is the scope for regulation in the industry? Is it detrimental to
Profire’s success?
BMS-related regulation was first introduced in Alberta, Canada, through the enforcement of rule B
149.3–10, which pushed Canadian oil and gas companies towards BMS in order to meet compliance
standards. Furthermore, tighter emission targets from Environment Minister Leona Aglukkaq could add
more pressure on Fuel related component inspection.
Regulatory changes seem to be heading towards a trend of decreasing emissions-increasing safety. Some
States, including Colorado have already imposed such changes. However, new legislation on Oil-depen-
dent states such as Texas, Alaska and North Dakota may experience a lag in implementation since a new
emissions policy would be like “shooting themselves in the foot”. A more lagging policy implementation
that can ease pressure on financially distressed corporations can be achieved in two ways. Either through
a “normal lag” by postponing the date by which all corporations should comply with the regulation or
through the imposition of a fine that is significantly lower than the installation cost of BMSs. In either
scenario, changes in regulation are on their side but in Scandium’s view, will have negligible effects on
the short-term share price and will not act as a catalyst for PFIE to take-off singly because of the new
regulation in oil dependent States.
Impact of Oil –Profire is not dependent solely on oil production.
Unsurprisingly, the share price of Profire has also been declining in line with the rest of the energy sector
and oil prices. This brings up the question, why is a company that is posting impressive financial num-
bers and growth being so harshly punished by the market?
It seems that Profire has more of a perception problem than a financial one. With Burner Management
Systems being the main focus of the company, we can see that despite a slowdown of oil drilling and
expansion in mainland USA and Canada, there is still a large market for their products in transpor-
tation and storage of oil, which we would expect to compensate for lower up field product sales due to
the excess supply of oil on the market. With oversupply unlikely to disappear in the short-run (IEA),
5m barrels per day during the first six months of this year, we expect Profire to maintain a stable level
of revenues despite low oil prices.

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Whats the future like for Profire?
We feel that Profire has been harshly judged by the market and is currently trading at a discount.
According to our estimates for oil and future growth rates for the company, we estimate the discount
to be as much as 700%. With the promise of future growth and the company not being in any debt
we believe that Profire is in the perfect position to establish itself as a market leader in the oilfield
emissions sector in the near future as regulations due to environmental awareness increase.

17
04
SR
31 January 2016
Imprint
Disclaimer
Bloomberg.com, “Canada To Regulate Oil And Gas Emissions With New 30% Target”, 2015
<http://www.bloomberg.com/news/articles/2015-05-15/canada-to-regulate-oil-and-gas-
emissions-to-meet-new-30-target> [accessed 31 January 2016]
Colorado.gov, “Emissions Requirements For Oil And Gas Industry | Department Of Public
Health And Environment”, 2016 <https://www.colorado.gov/pacific/cdphe/emissions-re-
quirements-oil-and-gas-industry> [accessed 31 January 2016]
Enefen.com, “Your Complete Solution To Safety, Compliance & Efficiency Of Combustion
Systems”, 2016 <http://www.enefen.com/csab149code.html> [accessed 31 January 2016]
Harder, Amy, “EPA Set To Regulate Oil And Gas Methane Emissions”, WSJ, 2016 <http://
www.wsj.com/articles/epa-set-to-regulate-oil-and-gas-methane-emissions-1421239861>
References

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