The Trading Floor

[Arctec]

Weekly Update February 11, 2007

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I presented Plug Power last week but we hit a glitch with the mail server and not everyone received the update. I am resending this week with updated information concerning Russian involvement and a target set by Citigroup.

That information is included at the bottom of this week's update. Citigroup placed an $8 target and billionaire shareholder, Mikhail Prokhorov, had the following comments following an important shuffling of assets.

"I am resolved to get seriously involved into this promising domain," Prokhorov said in a statement published on the Interros Web site. "I feel the hydrogen technology will help to establish an innovative economy in Russia."


Plug Power (PLUG/NASDAQ $3.72)
www.plugpower.com

Hydrogen Fuel Cells

Sept 30th - net cash approx. $270 million U.S. ($2.12/share)
shares fully diluted: 127 million
Revenue is marginal - near $6 million for 2006 (development stage)

It would be difficult to have missed all the media recently over Global Warming. The state of California has taken the most proactive approach this year by banning power companies from buying electricity from high-polluting sources, including most out-of-state coal-burning plants. In Bush's recent state-of-the- union address, he also approved billions in incentives to develop alternative energy sources. Thanks to Bush and the United Nations report on global warming, alternative energy is back in the limelight.

World Class Technology

Plug Power designs and develops on-site energy systems, based on proton exchange membrane (PEM) fuel cell technology, for energy consumers worldwide. Their technology platform includes proprietary PEM fuel cell and fuel processing technologies, from which multiple products are being offered or are under development.

They are currently offering for commercial sale thier GenCore® product, a backup power product for telecommunications, broadband, utility and industrial uninterruptible power supply (UPS) applications. The GenCore is fueled by hydrogen and does not require a fuel processor. They are also developing additional products, including a continuous power product, with optional combined heat and power capability for remote small commercial and remote residential applications.

PLUG is smallcap by U.S. standards but for us, it's abnormally large. However, I am presenting it for diversification now that the sector is back in vogue. The stock is trading at the low end of a three year chart and in theory, should have downside limited to the low three dollar range which was tested in January.

I typically have little interest in alternative energy companies but these guys are very well funded, have huge backers, and own some of the most advanced fuel cell technology in the world.

The U.S. and European governments have been supporters of the company through funding initiatives in late 2006. This has included;

* $4 million for development and demonstration of an ethanol-based, grid-connected system with the U.S. Army Engineer Research and Development Center's Construction Engineering Research Laboratory

* $3.6 million for the international development and demonstration of a high temperature combined heat and power proton exchange membrane (PEM) fuel cell system targeted for multi-family home applications.

* $1 million for the development of a new design for a prototype 1kW PEM fuel cell stack

* a grant from the European Commission for the development and demonstration of three high temperature combined heat and power proton exchange membrane (HT- PEM) fuel cell system prototypes (that could be used as heat and power sources for commercial and residential structures throught Europe)

Fascinating Russian Involvement

In the summer of 2006, Interros, a major Russian investment firm, and Norilsk Nickel, the world's largest producer of nickel and palladium, invested $217 million in exchange for shares of Class B Capital Stock that are convertible into 39.5 million shares of common stock (factored into the shares outstanding above). The purchase price per share of common stock in the transaction, on an as-converted basis, is $5.50 - on a converted basis, these two Russian companies own 35% of PLUG.

Two weeks ago it was announced that these major Russian investors were planning to "restructure" their business relationship, with shares in PLUG expected to change hands.

Russian billionaires Mikhail Prokhorov and Vladimir Potanin, who invested $217 million (£111 million) in Plug Power plan to change their business and investment structures.

Mr Potanin, who is chief executive of Interros Holding Company, will buy Russian mining company Norilsk Nickel from Mr Prokhorov, in exchange for Interros's power and energy assets. This, the St Petersburg Times is quoted as reporting, is likely to include a 35 per cent stake in Plug Power. The stake was bought through a joint venture between the two businessmen called Smart Hydrogen.

An article published recently by the St. Petersburg Times in Russia said that this would include Smart Hydrogen's 35 percent stake in Plug.

"I am resolved to get seriously involved into this promising domain," Prokhorov said in a statement published on the Interros Web site. "I feel the hydrogen technology will help to establish innovative economy in Russia." Plug will maintain a presence in Russia, where it will soon begin marketing its products.

$8 Target from Citigroup

Citigroup recently dropped coverage of PLUG because David Smith, an alternative-energy analyst, is leaving Citigroup. Before leaving, Smith had good things to say about the company. He gave it a buy recommendation with a 12 month target price of $8 This was before the Russian restructuring and all the media exposure with global warming so hopefully the next 12 months can see the company meet or exceed his expectations.




Danny Deadlock
Microcap.com

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