5N Plus no longer One Trick Pony

5N Plus' acquisition of Belgium's MCP Group means that primary customer First Solar may account for as little as ten percent of total revenue next year.

On Monday, after seeing data on the leaks at the Fukushima nuclear power plant in Japan, officials raised the the threat level to seven from five. Seven is the highest number on the International Nuclear Event Scale, placing Fukushima alone with Chernobyl on this inauspicious list.

The effect on worldwide equity markets boiled down to individual sectors. If you own insurance or uranium stocks, you’re probably poorer today because of Japan. But if you own almost any kind of alternative energy play, you’re likely up, as all candidates to replace nuclear energy are getting a long second look.

Shares of high flying First Solar (NASD:FSLR), an Arizona company that was the first to bring its solar manufacturing cost below a dollar per watt, spiked after the Japanese earthquake, from $139.74 on March 11th to $158.91 on March 15th. First Solar manufactures thin film photovoltaic (PV) modules, or solar panels, which convert sunlight to electricity. Demand for PV modules has increased nearly 42 times in the last decade, from 170 megawatts in 2000 to more than seven thousand megawatts in 2009. This demand meant First Solar’s revenue climbed from half a billion in 2007 to over $2.5 billion in fiscal 2010.

A few years ago Montreal’s 5N Plus (TSX:VNP), which produces essential components of thin-film solar modules, became a primary material supplier to First Solar. When First Solar’s revenue was ballooning, they were being supplied cadmium telluride cells by 5N Plus. The Montreal company, meanwhile, was mirroring the action, albeit on a much smaller scale. Sales increased from $10.3 million for the fiscal year ended May 31, 2005 to over $70 million in fiscal 2010. Shares of 5N Plus moved from a 2008 low of $3.50 to a high of $9.85 this past March. The relationship still appears rock solid; 5N Plus recently announced new five-year agreement with First Solar that extends the relationship until Dec. 31, 2015. 5N expects the contracted volumes First Solar will purchase will increase by 30 per cent to 60 per cent.

Analysts haven’t found much not to like about 5N’s new found success, but the company’s dependence upon First Solar, revenue for the first six months of fiscal 2010 First Solar accounted for 66% of 5N Plus’ total sales, might have given some pause. Last year, 5N Plus management tried to address this concern by signing supply agreements with smaller players such as Colorado’s Abound Solar. But a more recent move has probably closed the book forever on 5N’s “one trick pony” label.

On April 11th, 5N acquired Belgium’s MCP Group, one of the world’s leading producers of specialty metals such as bismuth, gallium, indium, selenium and tellurium. The acquisition, which cost 5N Plus just over $315 million, dramatically increases 5N’s scale. MCP is actually several times larger than 5N Plus; the company generated approximately $462-million of revenue in 2010, and has more than four hundred employees across Europe, Asia and the US.

Michael Goldberg, an analyst with Stonecap Securities, who covers 5N Plus said the acquisition is a “game changer”. Goldberg thinks that, post acquisition, First Solar could contribute as little as ten percent to 5N Plus’ top line.

On Tuesday, Shares of 5N Plus closed down 2.5%, to $9.41.

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