Invest in a Greener World With Carmanah Technologies

Carmanah Technologies Corp (TSX:CMH) is one of Canada’s oldest “green-tech” companies. It has been around since 1996 and has traded on the Toronto Stock Exchange since 2001.

Carmanah today has operations in three distinct divisions.

The first--and largest--is the signals segment division. This division designs, distributes, and sells solar-powered lighting solutions to customers like airports, marinas, construction companies, and so on. These devices can be placed in locations where it may be difficult to build traditional illumination.

In the company’s most recent quarter, the signals segment division generated US$10 million in revenue.

The illumination division supplies and installs solar panels to put on street lights. Between Carmanah and Sol, a 2014 acquisition, the company has more than 70,000 installations in some 65 different countries, spanning some 25 years of combined experience.

This division did US$1.3 million in revenue in the company’s latest quarter.

The final division is the power division, which installs both on-grid and off-grid power solutions for customers. Carmanah has recently announced it is looking to sell the power division, which represented approximately 35% of total company revenues thus far in 2016.

Weak margins may have contributed to this decision. The signals and illumination divisions had gross margins of approximately 40% in 2015. The power division was only able to generate 20% gross margins.

Management intends to use the proceeds from this sale to further expand in its two core businesses, primarily the signals segment division.

Q3 Earnings Preview

The company recently announced a preview of its third quarter earnings, with the full report to come in early November. It was a mixture of good and bad. The bad news was the signals division, which saw revenue drop US$1.4 million.

Illumination revenue helped offset some of the weakness, increasing from US$1 million to US$1.3 million, a nice result.

Finally, the order backlog fell from US$6.8 million to US$4.3 million on a quarter versus quarter basis.

Carmanah has a solid balance sheet. It had almost US$19 million in cash at the end of the second quarter, versus just over US$8 million in bank debt. With total assets approaching US$90 million, it could easily make another acquisition--even without first selling the power division.

The company proved it could make smart acquisitions when it spent a total of US$23.3 million to acquire Sabik, a leading manufacturer of marine signals, in 2015. Approximately US$18.8 million of the purchase price consisted of cash, as well as the issuance of 1.18 million shares, worth an additional US$4.5 million. Sabik effectively doubled the size of the signals division.

Carmanah is the true embodiment of a green company. Virtually every product it produces saves CO2 emissions. Management has also invested in ensuring the supply chain remains as efficient as possible, as well as taking steps to minimize the carbon footprint of the firm’s Victoria, B.C.-based head office.

Top execs are also big shareholders, truly putting their money where their mouth is. CEO John Simmons owns more than 615,000 shares. Chairman Michael Sonnenfeldt owns nearly 6.7 million shares. Directors James Meekinson and Terry Holland own 2.538 million and 517,900 shares, respectively. In total, the insiders own approximately 42% of the company.

Investors have to like that kind of arrangement. A board with so much skin in the game has its interests well-aligned with that of shareholders.

Carmanah is poised to be one of Canada’s leading green technology companies going forward. It will soon be flush with cash, ready to make another big acquisition. It also benefits from strong insider ownership a good balance sheet, and overall growth in green technology. If the company can execute its growth plan, good things could happen.