Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
LOL - true - the article is from this past December - and now the fundamentals are EVEN BETTER AFTER THE LATEST STELLAR EARNINGS REPORT. IMO as a matter-of-fact
Here's another good Seeking Alpha article with a positive outlook (from December, by "Long-Short Value"):
http://seekingalpha.com/article/3769376-solar3d-profitable-solar-roll-poised-breakout-2016
Solar3D: Profitable Solar Roll-Up Poised For A Breakout 2016
Dec. 21, 2015 3:37 PM ET|11 comments | About: Sunworks, Inc. (SUNW), Includes: FSLR, SPWR, SUNE
Long-Short Value Long-Short Value?Follow(455 followers)
Long/short equity, value, special situations
Summary
Solar3D is currently guiding for over $100m in Revenue in 2016 (P/S=0.64) without further acquisitions, which we think is conservative.
I believe shares of Solar3D are worth $5.5 in our base case (85% Upside) and $8.5 in our upside case (196% Upside).
Recent Solar Investment Tax Credit Extension and Paris Climate Agreement should be large tailwinds for the US Solar industry over the next 5 years.
Risks to Investors include a history of Penny Stock Promotion and Dilution.
Solar3D (NASDAQ:SLTD) is a small cap Solar Developer with lots of potential currently trading at discount to our assessment of intrinsic value. Solar3D originally started out as a solar cell technology company trying to commercialize their "3D" Solar Cell technology (more on this later). The company has since morphed into a niche Solar Developer and Installer created through a rollup strategy. The company has completed 3 acquisitions since beginning its rollup strategy in February of 2014. The 3 companies Solar 3D has acquired are SunWorks (1/31/14), MD Energy (3/2/2015), and Elite Solar (12/1/2015).
Unique Rollup Strategy
Unlike other rollup strategies that employ significant leverage through debt to acquire target companies, Solar 3D has used cash, equity and equity like instruments to acquire target companies at very cheap valuations. This strategy, while dilutive to shareholders, has allowed the company to keep its balance sheet in great shape and allowed it to expand faster than it could have under a debt driven rollup strategy.
Investing in a rollup strategy is risky and you need to understand the company's Capital Allocation Strategy and how efficient their Acquisitions have been in order to understand if the company is actually adding value through acquisitions. Before we get into their acquisition success you first need to understand the Solar Development Landscape in the Western United States and the types of companies Solar 3D has been acquiring.
The larger Solar Developers like SunEdision (NYSE:SUNE), FirstSolar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) dominate the Utility Scale Solar segment, but the commercial and residential segments are much more fragmented. The commercial and residential segments have many small developers that operate at close to break even or a slight loss. These smaller developers often have no economies of scale coupled with high administration and marketing costs. These issues prevent them from being profitable. Solar3D's acquisitions have focused on highly reputable developers with strong management teams but low profitability. Solar3D acquires these companies and allows them to cut administration and marketing costs all while providing leadership guidance. To see if this acquisition strategy has been successful we should look at their first two acquisitions, SunWorks and MD Energy.
Acquisitions Summary
I have summarized the three acquisitions that Solar3D has completed in the below table.
As you can see both SunWorks and MD Energy seem to have been wildly successful acquisitions generating Revenue CAGRs at over 200% per annum. Solar3D just become profitable in Q3 for the first time suggesting they have scaled these acquisitions to a point to start generating positive earnings on a go forward basis. I suspect that the Elite Solar acquisition will yield similar results as the SunWorks and MD Energy acquisitions as they have a unique niche in the Agricultural Solar Development market. As you can see the current revenue runrate of a combined organization already is already close to $100m. This makes any growth in 2016 above and beyond the already reported $100m guidance, which is why we view their guidance as conservative. Overall I would rate Solar3D's acquisitions to date as highly accretive for shareholders.
Management
Solar3D management has been very adept at making good capital allocation decisions. Jim Nelson, the President and CEO, has 30 years' experience in the Private Equity space working for Bain and Company. His experience and transactional background fits perfectly with Solar3D's roll-up strategy. Solar3D has also been able to add vast experience in the Solar Development through their acquisitions. All three acquisitions have come with the addition of the predecessor organization's leadership teams to Solar3D's leadership. The over 200% revenue growth that they have been able to achieve post acquisition is a testament to the strength of their management and their model.
Solar Cell
Solar3D is still currently working to develop and commercialize their 3D Solar Cell technology. The concept behind the design is to employ a wide angle collector on the top of a normal solar cell which is a series of microstructures that allow light to be "trapped" until the solar cell can collect its energy fully. This could raise the efficiency range of solar cells from the mid teens toward the mid 20s, with the company stating a figure of 25.47% efficiency on their website.
This all sounds really interesting and it would be a huge step change in Solar Cell efficiencies, which also makes me skeptical of its costs and applicability which is rarely discussed. The development and commercialization of the Solar Cell is ongoing with a patent pending and the search for a commercial partner continuing. The market basically ascribes zero value to the Solar Cell which the CEO Jim Nelson noted on the Q2 Earnings call:
Jim Nelson - President and CEO
In the mean time what I will tell you is this and I have told you this before, we ask people don't give us too much credit for that because there's always risk in technology. But focus on the business that we're building and when and if the solar [cell] is commercialized and does really well that will be a huge bonus for everybody.
I basically agree with Jim in regards to the Solar Cell. It is basically like an embedded option within the company but you get it for free as the rest of the business supports the current valuation.
Margins and Valuation
Solar3D is actually a very easy company to model because it has stable Gross Margins and very little Capex. Historical Gross Margins have ranged from 27-34%, but management has suggested their long-term gross margins will be at the lower end of that range. We assumed gross margins at 27% on a go forward basis to be conservative for modeling purposes.
Dilution is also a big concern, as the company has about 6.5m of share dilution outstanding through their Warrants, Employee Options, and Convertible Notes. To get the current diluted share count you need to add the Diluted share count from the Q3 8-K (22.47m) with the additional dilution from the Convertible Notes issued in the Elite Solar acquisition (1.5m), which yields a total of 24m diluted shares outstanding. See below our base case and upside case for the valuation of Solar3D's shares.
The following assumptions were used in the base case vs upside case:
2016 Revenue: $100m in base case vs $115m in upside case
5 yr Revenue Growth: 12.5% in base case vs 18% in upside (upside also included a 25% rev growth rate in 2017)
Net Profit Margin: 10% in base case vs 11% in upside case (this is supported by the 27% gross margin assumption)
Neither case assumed any value for additional acquisitions or commercialization of the Solar Cell. We view these both as potential sources of value but they are very hard to estimate.
Risks
Solar3D has a history of Penny Stock Promotion and Share Dilution. Both of these issues should be very concerning to any potential investor. The company had tons of coverage from penny stock promoters when it was an OTC stock before it was up listed to the Nasdaq on 3/6/2015. Since the up listing to the Nasdaq the penny stock promotions have slowed down, although we have seen a few continue. Penny stock promotions often cause wild swings in stock prices and are sometimes known as "Pump & Dump" strategies. The company also has a history of diluting shareholders over the last 2 years since starting their roll-up strategy. They have issued both Non-acquisition related convertible notes, acquisition related convertible notes, options, and warrants. Diluted shares outstanding have risen from 6.8m in December 2013 to 24m currently. Of those shares issued 6.1m were issued in a public offering to raise cash (3.1m via equity & 3m via warrants), 5.5m were used in the three acquisitions. The rest of the shares were used for initial start up capital raised in 2014 or for Management and Employee Incentive plans.
Any potential investor in Solar3D should read the company's SEC filings to get familiar with management and how the roll-up strategy has been executed as it is pretty complicated.
Conclusion
Solar3D is a small player in the very attractive Solar Development Industry. Although the company has a history of stock promotion and share dilution we think 2016 will be a turning point for the company. The recent Paris Climate Change Agreement and the recent extension of the Solar Investment Tax Credit are very positive tailwinds for the industry that should positively support Solar3Ds revenue growth. Shares of Solar3D are very undervalued in light of the coming revenue growth, profitability, and overall industry strength. We believe shares are minimally worth $5.50 and could be worth up to $8.50 if the company continues to execute on its growth strategy.
Warning for investors: SLTD is considered a micro-cap stock and has specific risks associated with it. Please see the SEC website for more information on micro-cap stock risks.
Disclosure: I am/we are long SLTD, FSLR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
That's a great reminder about what is right with Sunworks.
One thing though - that is a Seeking Alpha article right? Were you the author? If not you should credit the source and provide a link.
Thanks though - good post!
FYI - one shouldn't quote somebody using quotation marks and then change what was said - that would be dishonest and misleading
This statement simply is not true:
The reason that they haven't released Q1 ER is because the quarter just ended last Thursday and they have 45-days to finalize the report.
The reason that they haven't released Q1 ER is because the quarter just ended last Thursday and they have 45-days to finalize the report working with their auditing firm.
SUNE down big after hours on bankruptcy report/speculation:
http://www.marketwatch.com/story/sunedison-falls-more-than-50-after-report-of-bankruptcy-plans-2016-04-01
SUNE touched $0.17 / share around 15-minutes ago - which put its Market Cap at less than Sunwork's . . . Sad - this isn't the enemy but proof that Jim's business model is prudent.
Since then, SUNE is climbing back slightly - and with it the company's Market Cap - but it would seem that it only is a temporary reprieve.
http://www.nasdaq.com/symbol/sune/after-hours
Have a good weekend everyone - I expect some long-overdue news next week!
Just in my bullish opinion . . . about SUNW
Since we are talking about batteries - "Tesla Discontinues 10-Kilowatt-Hour Powerwall Home Battery"
http://www.greentechmedia.com/articles/read/Tesla-Discontinues-10kWh-Powerwall-Home-Battery
Tesla has quietly removed all references to its 10-kilowatt-hour residential battery from the Powerwall website, as well as the company’s press kit. The company's smaller battery designed for daily cycling is all that remains.
The change was initially made without explanation, which prompted industry insiders to speculate. Today, a Tesla representative confirmed the 10-kilowatt-hour option has been discontinued.
"We have seen enormous interest in the Daily Powerwall worldwide," according to an emailed statement to GTM. "The Daily Powerwall supports daily use applications like solar self-consumption plus backup power applications, and can offer backup simply by modifying the way it is installed in a home. Due to the interest, we have decided to focus entirely on building and deploying the 7-kilowatt-hour Daily Powerwall at this time."
The 10-kilowatt-hour option was marketed as a backup power supply capable of 500 cycles, at a price to installers of $3,500. Tesla was angling to sell the battery to consumers that want peace of mind in the event the grid goes down, like during another Superstorm Sandy. The problem is that the economics for a lithium-ion backup battery just aren’t that attractive.
Even at Tesla’s low wholesale price, a 500-cycle battery just doesn’t pencil out against the alternatives, especially once the inverter and other system costs are included. State-of-the-art backup generators from companies like Generac and Cummins sell for $5,000 or less. These companies also offer financing, which removes any advantage Tesla might claim with that tactic, as GTM’s Jeff St. John pointed out last spring.
“Even some of the deep cycling lead acid batteries offer 1,000 cycles and cost less than half of the $3,500 price tag for Tesla Powerwall,” said Ravi Manghani, senior energy storage analyst at GTM Research. “For pure backup applications only providing 500 cycles, lead acid batteries or gensets are way more economical.”
In California, batteries can benefit from the state's Self-Generation Incentive Program (SGIP). But California regulators have indicated that battery systems need to be able to cycle five times a week in order to be eligible, which would exclude Tesla's bigger battery.
“In current discussions on SGIP program overhaul, it is very likely that stronger performance requirements may get added, which will make a 10-kilowatt-hour/500 cycles product outright ineligible (if cycled only once a week), or last only 2 years (if cycled every weekday for about 500 cycles over 2 years),” said Manghani. “In short, the market's expectation is that for a $3,500 price tag, the product needs to have more than just 500 cycles (i.e., only backup capabilities).”
Backup power alone simply doesn’t have as strong a case as using a battery for self-consumption. That said, the opportunities for self-consumption are still few and far between.
A GTM Research analysis for residential storage, purely for time-of-use shifting or self-consumption. found that the economics only pan out in certain conditions. In Hawaii, for instance, the economics of solar-plus-storage under the state’s new self supply tariff (PDF) looks only slightly more attractive than solar alone under the grid supply option.
“So it comes down to the question of customer adoption of a relatively new technology for only slightly improved economics,” said Manghani. “This doesn't mean residential customers are not deploying energy storage," but he noted that these were the early adopters.
Tesla appears to be focusing its efforts on first movers and the markets where storage for energy arbitrage and self-consumption makes economic sense.
While the 10-kilowatt-hour option has been removed, the Powerwall website continues to offer specifications for Tesla’s 6.4-kilowatt-hour battery designed for daily cycling applications, such as load shifting. The battery is warrantied for 10 years, or roughly 5,000 cycles, with a 100 percent depth of discharge. The wholesale price to installers is $3,000.
The smaller battery is often marketed as 7 kilowatt-hours, which would appear to have a price of $429 per kilowatt-hour. In realty, it’s a 6.4 kilowatt-hour battery at a price of $469 per kilowatt-hour.
A bigger, cheaper or more integrated battery product could soon be added to Tesla’s lineup. In January, CEO Elon Musk announced a new Powerwall option will be released this summer.
"We've got the Tesla Powerwall and Powerpack, which we have a lot of trials underway right now around the world. We've seen very good results," said Musk during a talk to Tesla car owners in Paris, The Verge reports. "We'll be coming out with version two of the Powerwall probably around July, August this year, which will see [a] further step-change in capabilities."
At this point, it's unclear what the “step-change” will be.
Go SUNW!
Unfortunately, SUNW doesn't own the sunworks.com domain name.
Thus, they had to name their website using a variant of some kind so they chose to add "usa" to the end. This is the same reason that the previous website was "visitsunworks.com" . . .
Until they actually own the sunworks.com domain then we can't read too much into the inclusion of "usa" at the end.
On a more positive note - we are a profitable solar integrator which promotes system ownership over leasing. As Jim said recently, "We make money!" And, since we will have received all the revenue soon after the completion of each job - without having to wait 20-years to get the last payment - it is a relatively simple transaction.
The time-value of money dictates that we will have a higher multiple than a competing company that won't be receiving all of the revenue until many, many years later. A bird in the hand. Of course, we also should have a higher multiple than a competitor which isn't even profitable.
In the short term, we need the financial sites to be updated to indicate the profitable full-year just recorded. Furthermore, in mid-May when the Q1 2016 results are posted - we should see our TTM EPS bump up further as our only negative EPS quarter from 2015 will roll-off and be replaced with a profitable new quarter.
As I mentioned before, we also need to expand nationally so that we no longer are just a regional solar integrator. If we continue to remain profitable, as expected, while expanding to the point that we are at least perceived to be operating nationally - in the "USA" - then that's when we will get all the attention we deserve.
All IMO
Hmm - now that we have our own racking system - I wonder if we could have used that or will use it for similar jobs in the future . . .
And then soon after the financials are updated with the full-year 2015 numbers we'll have Q1-2016 results.
Q1 2015 was a loss of $0.10 per share per the NASDAQ site:
http://www.nasdaq.com/symbol/sunw/revenue-epse
So, the trailing twelve month financial numbers will just keep getting better as past quarters roll-off . . .
And it gets even better due to the pro forma results, including Elite Solar, which made last year's overall numbers even better. While it won't necessarily lead to any restatement for the full-year, it does give us a good idea that Elite Solar will only improve the financials going forward.
jimbo
Solar City has the power of Musk's name behind their program but Sunworks pays more for referrals:
http://sunworksusa.com/promo/referral-program/
I was listening to the Sunworks radio show this past weekend (Sacramento station over iHeart Radio) and they mentioned that you don't even have to be a Sunworks customer to collect on referrals. Double-check in case I misheard, etc.
Sunworks pays $1,000 / qualifying referral . . .
Just in my bullish opinion
Sunworks, Inc. : SUNW -US: Earnings Analysis: 2015 By the Numbers
http://www.capitalcube.com/blog/index.php/sunworks-inc-sunw-us-earnings-analysis-2015-by-the-numbers/
Probably a robo-analysis but we really stick out on this chart:
At quick glance it appears to me that the peer comparisons were performed against technology/telecommunications companies instead of other solar integration companies . . .
Also, just happened to run across this from the Q3 2015 Conference Call transcript:
SunWorks twitter:
https://mobile.twitter.com/sunworkssolar
For others . . .
I agree - great company, excellent management team, and a proven winner in a growing industry!
We have a lot of - um - fertilizer - in our rose garden today . . .
Everyone has a reason to be disappointed but the company really is delivering well according to plan. Jim is building the company for the long-term and the market cannot ignore results for much longer.
GLTA!
The Roth presentation is over now - really good Q&A section.
Jim mentioned that the racking system acquired with the Elite Solar acquisition will save around 10% on commercial jobs where ground-mount systems are used. He also said that they are working on a similar system for use in roof-mounted systems . . .
FYI - I stated earlier that the cell was depicted on the last slide of the presentation but it was only in the Appendix and was not actually discussed during the presentation (or follow-up Q&A).
Thanks - starting soon . . .
Page 18 shows the management team still all as "Solar3D" - oops.
The last page of the presentation is about the cell
Jim definitely was holding back on a topic related to increasing residential sales. The new Solar Design Center is supposed to open on Saturday, April 2nd. It could be that or it could be more. So far, we only know about the one center near Roseville so there may be more that we don't know about yet, there may be other pending news, etc.
As far as Wall Street acceptance of the company (while keeping in mind that the week is young) - Sunworks is a successful Regional solar integration company. I think an expansion to the East Coast will change that perception to Sunworks being a successful National solar integration company. Of course, we need to hit several other key markets as well. But, that's when we become fully accepted, in my opinion, assuming that everything else continues on the current path.
The Cowen write-up was really good but they perhaps are biased a bit. If I recall correctly, they were the underwriter for last year's secondary offering and received compensation either in shares or warrants.
Still long!
Sorry, it worked for me just now. I haven't been able to access it lately from my home PC (I'll figure that out . . .)
Also, the NASDAQ page already has been updated, with the new Q4 numbers, depicting a full-year of positive earnings:
http://www.nasdaq.com/symbol/sunw/revenue-eps
P.S. Did we lose our SUNWW board for the warrants?
The United Solar, in Huntington Beach, are not in the top 500 list (for what that's worth):
http://www.solarpowerworldonline.com/2015-top-500-north-american-solar-contractors/
Also, Jose made a good point that they seem to follow everyone (and maybe every company) that follows them. I followed Sunworks last night and today they are following me.
Thus, it most likely isn't anything we should be reading anything into . . .
Disclaimer: That is a fun site to scout potential acquisition targets, however, it is worth mentioning that neither Elite Solar nor MD Energy appear on the list for 2015 when both companies - at times - were independent.
Thanks for sharing - excellent write-up by Cowen!
Here's the replay link (select "Fourth Quarter and Year End 2015 Earnings Call"):
http://www.investorcalendar.com/#
Obviously, the link has a limited shelf-life so this post will be obsolete after a few days/weeks . . .
Okay - so now you switched to forecasting lows? What PPS did you get out at?
The full 2015 Sunworks Annual Report is available on EDGAR now:
http://www.sec.gov/Archives/edgar/data/1172631/000118518516003879/sunworks10k123115.htm
Here's the detail for the loan (my emphasis):
Here's the very brief video of the new Sunworks Solar Design Center:
https://www.facebook.com/video.php?v=1052820394775162
Fortunately, they are using the new logo ( or at least a variation of it )
In case anybody doesn't know what a Solar Design Center is - this should help explain the concept:
Yeah - I'll back you on this one - more than $20 million and close but slightly less than 2016 run rate guidance (a quarter early).
IMO - the holidays are the only thing that could hold us back from a $25 million revenue run-rate.
Plus don't forget that we also get one month of Elite Solar financials and\or they pro forma and report all of their contribution . . . ?
If we close at $3.14 on Friday - we'll be 3.14 heading into earnings on Pi Day!
Probably the right call guys - my initial take was there's no such thing as bad press - but we know better.
The question is how long do we have to wait after the ER this coming Monday before all of the financials are updated with all of the expected positive news
It's listed in my Scottrade account when looking at the SUNW detail
Most companies in our industry are not profitable, so if the "industry" average is 1.9x, then Sunworks' valuation potentially could be even higher . . .
Stop with the Market Order Sells people!
Finally - the artificial 52-week highs are behind us now:
52 Week High 4/1/2015 | $5.7232
This is the real benchmark for PPS going forward IMO . . .