- 900% revenue growth year-over-year, plus a new partnership with big potential, and Solbright Group (SBRT) remains an under-appreciated energy conservation opportunity
- Solbright provides energy management solutions and solar panel installation, and even after a 2017 acquisition and now a partnership with a highly respected company in the "Internet of Things" sector, SBRT is way off most investors' radars
- As the company goes mainstream and revenue grow substantially, the market capitalization of only $8 million could change rapidly. Similar companies are valued at 2 or 3X their revenue, indicating that SBRT could rally by 200% just to make fair value
It's gone completely overlooked in the public markets, but little Solbright Group (SBRT) has made its second major partnership/acquisition announcement in the last twelve months, and it could have major implications for this little company.
Solbright Group is an emerging energy conservation services company, and they've been growing by leaps and bounds since acquiring an East Coast solar company last year. In their recent fiscal third quarter, they reported an increase in revenue of over 900% compared to their third quarter of fiscal year 2017. Their newest partnership could be even bigger.
Solbright just announced a partnership with M2M Spectrum Networks, LLC (dba Iota), a company that provides comprehensive Internet of Things (IoT) communication solutions, where the two companies will work together to offer a Smart Facilities line of products and services, called SF Net. The deal fits within one of Solbright's current offerings already, and it's a clean addition that could bring a host of new clients with Iota as copilot.
What the markets are overlooking is the Iota management team's background of success. CEO Barclay Knapp founded and built Cellular Communications, Inc. (Cellular One), the first cellular company in the U.S. to go public, before he went on to found and lead NTL, Inc., now Virgin Media Inc! He's an operator with a history of building success, and partnering with Solbright Group is a major affirmation for the small company.
At its current stock price and with continued revenue growth, SBRT could be one of the most overlooked names of 2018, worth 2X or more based on a peer analysis.
Saving Businesses Money Creates a Win-Win for Solbright
Solbright Group's expertise lies in improving energy efficiency for facilities, municipalities, and businesses. Through their energy conservation services subsidiary SES, Solbright provides energy conservation services to commercial operators and buildings throughout the eastern United States, including energy consumption assessments and recommendations, as well as acting as the general contractor for solar panel installations and other retrofits.
This pairs with the other side of their business, called Arkados, which develops proprietary, cloud-based device and system management software solutions and delivers software services and support. This software works with installed gateways and sensors to gather and analyze energy use data in order to improve energy consumption for manufacturing spaces and other facilities. This can be used on single machines or throughout an entire facility, campus or even city to measure and ultimately reduce energy usage and costs. It's being called the Industrial Internet of Things.
For a recurring fee, facilities continue to improve energy consumption--and thus cost-savings--generating ongoing income for Solbright Group. It's a win-win for the company and their clients, who can save money on their energy consumption.
Revenue Has Multiplied Since Last Year's Acquisition
Solbright's expansion last year with the acquisition of a mid-Atlantic solar installer brought with it a $40 million pipeline of potential projects and revenue. It fit perfectly with the company's existing contract work, but it's exceptionally savvy because it brought along an inherent pipeline of business potential for their Arkados software business, as well. This is key to understanding SBRT, as the software side of the business can generate exceptional margins in the 80-90% range, and this is long-term, recurring revenue.
Since that acquisition, sales have soared. The company reported revenue for the third quarter of fiscal year 2018 of $2,496,544, an increase of over 900% compared to revenue of $263,800 in the third quarter of fiscal year 2017, while gross profit increased to $928,036 from $212,440 year over year, an increase of over 430%.
Latest Partnership Could Lead To Much Bigger Things - Here's Why
Now, the Iota partnership, announced in June, could be the next catalyst for another revenue bump in the coming years, and there's a lot to be said for the company's stellar management team.
Iota CEO Barclay Knapp was a co-founder and President of Cellular Communications, Inc. (Cellular One) in 1983, the first cellular company in the U.S. to go public. He sold the company, then co-founded and was CEO of NTL, Inc. (now Virgin Media Inc.), and grew the company into what is now the largest cable and broadband provider in the UK. That company, at its peak, was worth over $30 billion, and in 1998, The Financial Times named him ''Telecommunications Executive of the Year.'' To say he's an operator in this space is an understatement.
Iota and Solbright are partnering on a proprietary new connectivity line called SF Net, combining a network and suite of solutions that will provide corporate and campus facility managers with a one-stop, turnkey-installed, facility-wide network and applications platform. This enhances and expands SBRT's existing hardware and software offerings, and with the added bonus of radio-based connectivity. Iota Communications owns the first low-cost, dedicated nationwide internet-of-things network, using FCC-licensed radio spectrum. This service offers a middle ground between high-bandwidth 4G needs (like streaming video) and near-field needs, like Bluetooth headphones connected to a cell phone. It's a low-cost approach to transmitting information long-distance; for instance, the company has worked with the Val Verde County, Texas Sheriff's Office to electronically track vehicles, officers and assets. The Solbright-Iota team plans to launch SF Net with current Solbright partner, the Ying Wu College of Computing at New Jersey Institute of Technology, as well as current Iota customer Arizona Christian University.
The deal could bring in significant new revenue sources and contracts, and it's especially notable for the caliber of Iota's team.
SBRT Significantly Undervalued Today, Might Not Last Long
At only $8 million in market capitalization, SBRT may be a steal trading at less than 1X their trailing twelve months of revenue. SBRT has reported $12.3 million in revenue during the last twelve months, and looking at its peer companies suggests this is substantially undervalued.
Sunrun (NASDAQ: RUN) and Vivint Solar (NYSE: VSLR) are two of the biggest solar installers in the United States. RUN has a public market value of $1.51 billion, and during the trailing twelve months, they reported $570 million in sales. Their Price-to-Sales ration is over 2.6X.
VSLR has a public market capitalization of $600 million, and they had sales of $280M in the last 12 months. Their Price-to-Sales ration is over 2X.
Stock Could Double Or Triple To Reach Fair Value
These are similar companies doing similar businesses, though without the same software business to augment their solar contracting. But in effect, these two companies demonstrate that SBRT could DOUBLE and still be, possibly, undervalued based on their current operations.
Solbright is on track to have sales of around $12 to $15 million in their fiscal 2018, extrapolating from their last few quarters. A 2X to 2.5x Price-to-Sales multiple could mean a fair value market capitalization based on this 2018 estimate of $24 to $38 million. Even at 2X, the low end of their peers, the stock could TRIPLE and still be within reason for this solar competitor group.
At 1X revenue and with their latest partnership signed, SBRT appears to be an excellent high-risk high-reward trade in 2018. Once investors pick up on the relative value in SBRT, this stock could be worth 2X to 3X just to catch up to its peers in the solar segment.
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