- Revenue Soaring at Solbright Group (SBRT), Company Executing in Wake of Solar Installer Acquisition Last Year with Positive Cash Flow in First 6 Months After Closing Deal
- Metrics in the Right Direction and No One's Paying Attention
- Continued Execution on Services Front Could Bring High-margin Software Business Up to Speed, Making Solbright a Unique Name in the Energy Conservation and Booming IIoT Market; SBRT Could be Worth 200 to 400% of Today's Prices Based on Peer Analysis Today, and not Considering Upside from Unique, High-Margin Software side of the Business
In the two quarters following the acquisition of a mid-Atlantic solar installer, Solbright Group (SBRT) is looking smart. Their second quarter of fiscal 2018 report last month showed a 750% jump in revenue compared to the same period a year ago. Impressively, the company even maintained positive cash flow during the 6 months since the acquisition, demonstrating that the income statement isn't the only thing to be watching.
With financials headed in the right direction, it's just a matter of time before investors catch on to this unique energy conservation company: Solbright Group's "services" business sets up a tremendous funnel of potential business for their high-margin "software" business, where the company leases and manages a SAAS networking and hardware package to large facilities, with significant potential recurring revenue. The solar installation business serves as a feeder source for the big opportunity, and 2018 is set up to be a potentially banner year with 200% to 400% of possible upside based on peer analysis.
Acquisition Complete, Financials On Track, Could Make 2018 A Breakout Year
Solbright Group's core competency lies in improving energy efficiency for large, high-value facilities and infrastructure projects. Through the company's 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 light-emitting diode retrofits, oil-to-natural gas boiler conversions, and solar panel installations, to name a few. These services pair with the other side of their business, called Arktic, the company's proprietary scalable and interoperable cloud-based software system for sensing, gathering, storing and analyzing data energy usage data as well as implementing command and control in these same facilities. This package can be used on single machines or throughout an entire facility, campus or city to measure and ultimately reduce energy usage and costs. 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.
In summer 2017, Solbright Group acquired another mid-size photovoltaic installer, a smart move considering the $40 million in reported pipeline revenue potential at the time. The acquisition appears exceptionally savvy due to the intrinsic business opportunity that accompanies increased solar installation projects - the opportunity to sell ongoing services (lighting retrofits, for example) as well as continued used of the Arktic software platform. This is key to understanding SBRT, as the software side of the business should generate exceptional margins in the 80-90% range, compared to 10-30% for most contracting projects.
Importantly, the acquisition is looking smarter than ever based on the company's most recently reported quarter. In the fiscal second quarter of 2018 (ended Nov 30, 2017), Solbright reported an impressive 750% revenue growth, to $3,291,100, over the same period last year, due primarily to the solar installation acquisition. And, the company reported positive cash flow for the 6 months since the acquisition, meaning that the internalization has gone well and the company is maintaining a positive trajectory.
Could Be Worth 200 to 400% Returns With Continued Execution
Solbright's business is already generating revenue, and with the addition of its new solar installation business this summer, the company could be about to springboard into a new period of growth. Solar installations are on the rise in the United States, with second quarter installations up 8% over the same period last year.
Valuing this business isn't easy because there are so few companies doing what Solbright is doing: solar photovoltaic installs combined with efficiency improvements and smart networks to enhance a facility's efficiency, with a proprietary software (SAAS) platform.
Looking at comparables, Vivint Solar (VSLR) trades on the New York Stock Exchange and installs/maintains residential and commercial photovoltaic projects. At a $380 million market capitalization, investors have valued this company at a 1.6X Price/Sales multiple based on $243 million in sales over the trailing twelve months (TTM). In 2016, the company did sales of $135 million, for a Price/Sales multiple of closer to 3.
The same metrics applied to SBRT demonstrate just how under-the-radar this opportunity is. Solbright is on track to have sales of around $15 to $20 million in their fiscal 2018 based on $8.6M so far in the year. A 1.5 to 3x Price/Sales multiple could mean a fair value market capitalization based on this 2018 estimate of $30 to $60 million depending where revenue comes in.
At $12 million in market value today, SBRT could have 200 to 400% of upside as investors understand the company's latest solar acquisition and future revenue potential... and that's just to come in line with similar companies in this space. And, this valuation metric may even be conservative based on the company's more unique business model, which should blossom in the coming 12-24 months.
As the newly combined Solbright Group onboards new solar projects, more SAAS opportunities will emerge. Just $1 million in revenue from this side of the business could generate $900,000 in recurring annual gross profits considering the low-to-non-existent cost of sales for this segment, meaning that overall margins at SBRT improve with time and penetration of this burgeoning market opportunity.
Large caps like Tesla Inc (TSLA) are a compelling "energy efficiency" anchor to any portfolio, but smaller up and coming companies like Solbright can make for a great high-risk high-reward addition, especially as the stock may go through price discovery in 2018 with a transforming business. Just look at recent price action from similar small/mid-cap companies like DPW Holdings, Inc. (NASDAQ: DPW) and Snap Inc. (NYSE: SNAP) that have undergone changes in their business.
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