I’ve been reading titles like this for years. The same for titles about the imminent tipping point of the adoption of electric vehicles. Well, we seem pretty close on EVs, what about solar? I don’t know how to define a tipping point in solar, but adoption is exploding. Everyone knows that the costs to manufacture solar panels continues to decline. Less well known is that the conversion rate of the sun’s energy is improving modestly each year as well. It’s like measuring both the declining costs of computers AND the increased computing power. There’s so much written about the benefits of solar power. I’m not here to convince readers of its potential. I’m here to show that strong growth in solar is virtually assured, tipping point reached or not.
I remain a fan of nuclear power for very-large scale BASE LOAD projects in countries with large populations. Solar will never replace base load electricity generation. However, who said that solar has to compete with nuclear? Since solar penetration is at much, much lower levels, growth rates will remain sky high. The key to solar’s growth will be speed to market. Nuclear reactors require years or even a decade to build and billions of dollars. Rooftop solar installation takes days. The actual installation period is not a fair comparison, there are approvals, permits and planning that may take weeks or even a month or two. Still, speed to market is the defining moment for small-scale solar.
Moving up to mid-scale solar installations on commercial buildings, car ports, hospitals, apartment buildings, manufactures, military bases, nursing homes, municipal buildings, prisons, malls, etc, the all-in costs are in the millions to tens of millions and the time from the GO decision to installation probably a year or less, (unless there’s local opposition, utility interference or bureaucracy), each of which will decline over time. Simply consider the high number of cash-strapped schools and municipalities. A zero down payment to lock in long-term rates while cutting costs 15%-30% will gain increasing acceptance. Perhaps even hitting a tipping point? Speaking of schools– they are especially interesting because they’re closed in the summer and would presumably be net generators of electricity by feeding the grid, i.e. making money in the summer!
CBD Energy a Highly Compelling Growth Opportunity
Speed to market will diminish opposition and bureaucracy. Improving technology and lower costs will assure wider adoption. From an investment perspective, which companies are best poised to benefit from this trend? When one thinks of solar companies, SolarCity may come to mind. That company has been a huge success. It now has an Enterprise Value, “EV” (market cap + debt – cash) of $7 billion. Yet, it’s forecast to continue to report negative net income for at least the next 2 years and trades at an tailing 12 months EV/Sales ratio of 33 times. Instead, I’m invested in a small cap NASDAQ-listed company, CBD Energy [CBDE]. Its market cap is $25 million. Which stock do readers think could double or triple over the next year? The giant SolarCity or CBD Energy which is trading at an EV/Sales ratio of less than 0.5x next 12 months revenues?
Which company will grow faster? CBD Energy forecasts revenue growth of about 60% a year in 2015 and 2016. Can the giant multi-billion solar plays match that growth? Perhaps some can, but I don’t want to bet on it. In addition to spectacular growth, the company will be net income positive from 2015 on. CBD offers a very compelling risk reward/reward opportunity. It has the flexibility to be nimble and make quick decisions. It has a stellar management team for a small cap. This is a company that’s flying under the radar because it just recently uplisted to NASDAQ. More importantly, it just recently entered the U.S. markets from its home base in Australia. SolarCity loves to quote its $3 billion revenue backlog. CBD has a backlog of greater than $100 million, yet its EV is 1/300th of Solar City’s. That’s 1/300th, but its revenue backlog is 1/30th that of SolarCity’s. Again I ask you, which company is more likely to double or triple?
CBD Energy is More Than Just a Residential Rooftop Solar Company
I focus on residential rooftop because it’s what most people are familiar with. If CBD could capture just 1% of the installs that SolarCity boasts about, that would equate to about $5 million of PROFIT a year. The company has proven that it’s a player by licensing the, “Westinghouse Solar” brand name. No solar company can compete with that household name, well known in multiple countries. However, CBD is more than just residential solar. To be clear, the company has expertise in that area, having installed more than 17,000 systems. The company also has a growing commercial-scale solar business, a wind segment and an energy efficiency business.
This company is poised to make a move in the renewables industry. It will never be a SolarCity, nor does it want to be. Profitability and high revenue growth are just fine. In addition to the three-pronged strategy, CBD is more geographically diversified than most peers. The company has operations in Australia, the U.S., the U.K. and “rest of world.” CBD has a committed line of credit of $20 million, an amount greater than its current market cap. It has close ties with contractors, hedge funds, private equity firms and banks that want to co-invest and/or acquire finished projects.
What do I mean? Consider that the company owns 10% of a large wind farm that it managed the building of and arranged the financing for. On that single project, which will be finished in December, the company expects to sell its interest for a $15 million pre-tax profit. $15 million is a huge score for a small cap. It moves the needle, it retires ALL debt, it funds robust growth. Each and every commercial-scale solar or solar project will move the needle. CBD is in the driver’s seat to make tuck-in acquisitions of peers and joint ventures with any number of larger players. Once this company’s valuation, backlog, profitability and growth become known to the market, I think the stock price could soar.
Disclosure: Mr. Epstein owns shares of CBD Energy. This article and all articles written on MyriadEquity.com by Mr. Epstein does not represent investment advice and express his opinions only. Mr. Epstein is not a registered investment advisor. Readers should consult with their own investment advisors before considering buying or selling any securities mentioned in this article. Mr. Epstein has no prior or existing relationship with CBD Energy.