Rodman & Renshaw Is Buying MagneGas, Likes Its Foray Into Alternative Green Gas

MagneGas Corporation MNGA manufactures an innovative metal-cutting gas, which has applications in the metal working, co-combustion and waste sterilization markets. Rodman & Renshaw’s Amit Dayal initiated coverage of the company with a Buy rating and a price target of $3.

The MagneGas2 product is being positioned as “an alternative green gas,” with which the company seeks to replace the currently used acetylene gas in the metal cutting industry. The market opportunity is estimated at around $5 billion, analyst Amit Dayal noted, adding that the key differentiators of MagneGas2 are speed, accuracy, safety, lower cost, and efficiency.

Early Adoption

While there is demand from typical metal working customers and distributors, MagneGas has been able to capture demand for its MagneGas2 product from various first responder entities such as FDNY [New York’s Fire Department].

Although such customers may not account for large volume sales, they typically have a rigorous selection and testing process, and demand from them may signal “the superior attributes of MNGA’s offering to the market,” Dayal commented.

Co-combustion: Biggest Upside Driver

The co-combustion opportunity with electric utilities is likely to become the most important market being addressed by the company, the analyst mentioned, while adding, “At an estimated $5M per MNGA’s co-combustion deployment, the coal-fired power industry (500+ locations in U.S. alone) represents a significantly larger addressable market for the company.”

MagneGas is currently undergoing independent verification of product attributes by a couple of reference organizations, and news on the verification is likely to be announced before yearend, Dayal said. He added, “Investors should note that the successful execution of the co-combustion strategy is material to our projections and valuation for MNGA.”