GSE Systems: A Unique Speculation on Uranium and Nuclear Power?

Jan 18

GSE Systems: A Unique Speculation on Uranium and Nuclear Power?

GSE Systems (GVP, NYSE) – Market Cap = $62M

GSE is a pioneer and one of the world’s leaders in providing high-fidelity nuclear plant simulators and performance improvement solutions. Since building the first commercial full-scope nuclear power plant simulator in 1977, GSE has installed more than 1,100 simulation and training programs in 50 countries.

GSE -- pic

My 154 word thesis on why the stock will make you money…

As of 2015 GSE has a new management team in place and the company’s operations have turned for the better, dramatically. Following 3 years of quarterly losses, GSE has reported 5 quarters in a row of positive adjusted Ebitda. Amazingly, and alarmingly, many nuclear plants are still using simulator systems that were installed in the 1980′s. Old nuclear plants need to be updated and the +50 reactors under construction require training and simulation software. GSE‘s $69.3 million backlog is sitting near all-time highs and operating cash flow was up 197% year over year to $3.9 million, making it fairly valued at roughly 10 X operating cash flow ex cash. Approximately $1.02 of GSE‘s $3.20 share price is cash. A bull wave in Uranium prices and government mandates for “carbon free” energy will support GSE. Additionally, savvy speculators will begin to figure out that GSE is an excellent proxy on Uranium and follow BMR’s lead.

Technically speaking, the stock chart is beginning to confirm our thesis that GSE‘s underlying business has improved.

GVP -- 1yr

Regaining the 2007 highs of $12 per share is possible if GSE proves to be in the sweet spot of a performance improvement and software upgrade cycle within the nuclear power industry.

Government stimulus as a catalyst…

During August of 2016 the state of New York’s public service commission authorized $500 million per year, commencing 2017, to help keep New York’s power plants running. Half of the states electric power is mandated to come from carbon free sources by 2030.

Other states could follow.

Additionally, the Department of Energy (DOE) released a draft plan to double America’s nuclear power generating capacity via advanced reactors that don’t require cooling by 2030.

Currently, the majority of GSE‘s business activity comes from the USA, UK, China, Korea and Japan. Below is a look at its blue chip customer base.

GVP -- customers

Between August 2016 and March of 2018, Japan is supposed to restart 19 nuclear reactors. Post Fukushima, one would expect advanced “simulation” and “training” programs would be mandatory at every nuclear power plant in the world.

Baby boomers retiring as a catalyst…

GSE estimates 39% of the nuclear workforce will be eligible for retirement by 2018.

Meaning, the industry must hire 20,000 new workers over the next 4 years to replace them. Training new employees and re-training old one’s to efficiently and effectively operate nuclear plants should be a growth business for GSE over the next 12 to 24 months.

8 more points worthy of mentioning:

  1. I listened to GSE‘s 2 most recent earnings conference calls and there was only 1 question from a retail investor! An excellent anecdotal sign this stock is under-loved and relatively unknown.
  2. Insider buying– since August 2015 insiders have purchased more than 300,000 shares (almost 2%) and implemented an employee stock program to better align their interests with shareholders.
  3. To my knowledge, GSE is the default simulations provider for Westinghouse‘s “AP 1,000” Reactor. The Westinghouse AP 1000 is the reactor being installed for about 50% of all new nuclear power plants worldwide.
  4. GSE‘s new management team has cut operating expenses by $4 million since joining and are implementing a re-seller program that’s commission/performance based.
  5. In addition to organic growth, GSE is doing due diligence on +100 acquisition targets that would compliment its existing businesses and create shareholder value.
  6. New orders for 2016 were up 160% to approximately $14 million.
  7. Net income for 2016 was a positive $168k versus a loss of $3.8 million.
  8. Barriers to entry. You better believe it, you can’t just roll out of bed and decide to give the nuclear power plant business a go. GSE has a 40-year track record and 1,100 installations under its belt. Arguably, it is “the” go to provider for what it does.

I think I’ve discovered a real gem with GSE Systems and the timing couldn’t be better given the recent surge in Uranium stocks.

First published at BullMarketRun.com

 

*Author has a long position in GVP

 

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