S92 - SMA Solar

[kab60]

Just a small update. SMA gave 2017 guidance some weeks ago. Expect more than 400m cash on the balance sheet in FY2017 (meaning EV of 460m currently) and EBITDA of 70-90M or EV/Ebitda of 5,75. There's still a lot of pricing pressure, but they've shown they can counter that somewhat in recent years, and they expect to increase margins in 2018. Not sure if they'll be able to do that, but I still think it's too cheap. Downside is somewhat protected by cash/M&A optionality, and if they're able to increase margins in a growing market that would be a big positive. It's a tough business, obviously, but the runway for PV is huuuge and I think the inverter market is a good way to play that since it seems there is some barriers to entry (no new players in a lot of years), whereas the actual manufacturing of PV cells and developing projects is a really tough business.

 

http://www.sma.de/en/investor-relations/ir-news/news/16040-sma-solar-technology-ag-generates-sales-record-in-2016-and-substantially-increases-operating-e.html

[kab60]

It's drifting down towards my cost basis. It's cheap on an EV/Ebitda basis with an enterprise value of 375m when one accounts for at least 400m in cash at year end. That compares to 70-90m EBITDA guidance for FY17, and the Company generated 145m cash from operations last year (or more than 1/3 of its EV).

 

At the same time, it's not obvious that the cash will be returned to shareholders. I figure SMA wants to keep a somewhat large cash buffer so its customers knows that they can ride out any downturns and stand by their warranty obligations (just like Vestas in Wind Power for those familiar). A competitor like Enphase seems to be struggling massively meaning it's probably more difficult for a developer to secure financing if using its inverters. I think some smart guys call what might hit a company like Enphase Reflexivity.

 

So the market might not give SMA full credit for the cash, and one probably needs to discount it. I'm somewhat struggling with figuring out how good management is but trust the owner-operated mindset to not blow a lot of cash on a dumb acquisition and since Danfoss became an investor they've been pretty swift at closing down unprofitable locations.

 

In other news, SMA prepares for sales push in USA amid "massive hiring" which it says is now a highly attractive market.: https://renewablesnow.com/news/sma-solar-prepares-for-sales-push-in-us-massive-hiring-562091/ -

 

"The US solar market had a record-breaking 2016. It installed 14.76 GW direct current (DC), almost double what was added in 2015, according to GTM Research and the Solar Energy Industries Association (SEIA). Pierre-Pascal Urbon, SMA CEO, said residential, commercial and utility customers have “reached a tipping point in recognizing the critical importance of the inverter” and the US has turned into an “extremely attractive market"

 

I think it all seems pretty bullish. Despite cost reductions across the PV scene gross margins have held up pretty well atSMA (actually increased in recent years). So it seems the Company is able to cope with the environment and they're guiding to increased profitability next year.