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Climate Exchange Rebounds on Robust Results

September 28, 2008 – Comments (0) | RELATED TICKERS: GRN

Climate Exchange Rebounds on Robust Results
Late last week, Climate Exchange (London: CLE) posted strong operating results, stemming a massive loss in market value of about 50% (from about 2,000 to 1,000 pence per share) in the wake of the financial crisis and near market meltdown. The stock has since settled at the 1,300 level as carbon trading growth in the Company's two climate exchanges (European – ECX + Chicago – CCX) demonstrated health growth during the first half of 2008. The ECX posted gains from the year-ago period of 150% on over 1 billion tons while the CCX registered a 286% increase on 46 million tons of carbon traded.

Climate Exchange also narrowed its pre-tax loss to $0.6M (from a $5.1M loss in 1H07) on revenue that nearly doubled to $19.8M compared to the year-ago period, resulting in a cash balance of $24.7M (all amounts in USD). The CEO, Neil Eckert, was most bullish on the emissions trading plans for China since Climate Exchange is the only Western company with a stake in that country, which is one of the largest producers of greenhouse gases due to rapid expansion and industrialization. The CEO also stated that Lehman Brothers had a stake of over 3% [web link of top 10 shareholders] in Climate Exchange and suggested the likelihood of other examples of forced selling during the market panic early last week.

Other growth areas for Climate Exchange include recently launched futures on its Insurance Futures Exchange [IFEX] for damaging events such as hurricanes, which are contracts to cover losses ranging from $10B to $50B that increase in increments of $10B. The first real test for this market will be damage from Hurricane Ike, which is expected to be announced in the coming weeks with damage estimates of $18B in the U.S. – enough to trigger the lowest level of loss protection. Also, carbon allowances have begun trading in the U.S. on the Company's CCX as part of the Regional Greenhouse Gas Initiative in the Northeast.

Since I first highlighted Climate Exchange five weeks ago, it has declined by about 21% to a market cap of $1.1B (USD) as of Friday's close. However, in the meantime the shares also rose by over 20%, flirting with the $2,000 pence level several times in late August. For U.S. investors who are bullish on the carbon trading market, the iPath Global Carbon ETN (GRN) tracks the price of carbon while the companies in my Global Carbon Trading Index offer a variety of choices across the risk spectrum with exposure to carbon credits.