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Contract win underlines faith and interest in solar products
by Susanna Twidale
The recent $20 million contract win by Solar Integrated Technologies in Italy highlights the growing demand for solar products in the country and the company’s need to ramp up its manufacturing facilities in Europe. The latest deal, with Italian project developer ENER Solar, comes on top of a separate $70 million deal announced in December with an unnamed Italian customer.
Chief executive Randall MacEwen says that incentives on offer in the country make his company’s roofing systems particularly attractive. Non-building integrated solar projects qualify for a feed-in tariff of 38 euro cents per Kwh while integrated products, such as Solar’s roofing systems, qualify for 44 euro cents per Kwh. This figure rises by a few more cents for systems installed on government municipality buildings. There is a similar but even more generous incentive plan in France which is another country being targeted by the company.
In America
It has already secured a number of contracts in the US with blue chip customers such as Tesco. MacEwen says the demand drivers in the US are very different. The feed-in tariffs
are key in the European market but in the US the attractions instead surround security of supply and companies’ ability to hedge the costs of their peak power consumption. With the solar systems ‘you are locking in a significant portion of your energy needs at the time of the day when it is most needed,’ MacEwen says. ‘Companies can lock in the price of power and hedge themselves against any large rises in utility costs.’
Currently its solar roofing systems are manufactured in the US but there are plans to establish a European plant in 2009. ‘At this point there are no expectations that we will need to do a fundraisng,’ MacEwen assures. It made moves to stabilise its balance sheet last year raising $28 million, which was partly used to pay down debt, leaving it with a cash balance of around $9.5 million. It is also forecast to move into the black this year with analysts predicting pre-tax profits around $8 million on revenues of $140 million to $180 million.
Causes for concern
The biggest risk to the company is the fact that it relies on single suppliers for key components of its products such as Energy Conversion Device’s subsidiary Uni-Solar for the panels and Sarnafil for the PVC and TPO polymer roofing material. However, the company has strong relationships with each of these and KBC Peel Hunt’s Dr Tom McColm says, considering ECD’s $1.1 billion market cap, it could even be a potential bidder for Solar Integrated in the future.
The shares in the company have risen by more than 14% in April to 103.5p but analysts believe there is further upside potential and that profitability this year could be a turning point. Mirabaud analyst Julian Lakin has a target price of 150p while McColm has a discounted cash flow target price of 171p.