Trying to provide renewable energy as a service
iSun (ISUN) is a solar engineering, procurement and construction (“EPC”) company that recently merged with Peck Electrical, listed on SPAC, to form a diverse and fully integrated solar infrastructure provider. The company is based in Vermont and has completed some of the state’s largest facilities to date, and is looking to expand into a region favorable to the adoption of renewable energy. Along with traditional solar infrastructure projects, the company strives to provide services to new growing markets by developing electric vehicle solar carports, storage systems, electric vehicle fleet infrastructure, software operation and other innovation services for smart cities. This leads to their goal of becoming a renewable energy supplier as a service provider, with a high margin business profile based on recurring revenue for their solutions. Finally, the company intends to benefit from financial markets and funding, by owning green energy assets that provide stable cash flow through green bonds and power generation.
Image 1: Source. Although the EPC is low margin, the company is looking to provide higher margin recurring revenue solutions to combat this. This is one of the key points to consider and look forward to for this speculative bet.
While this may all seem like a noble and speculative endeavor, iSun has won a winning bid to deploy solar electric vehicle charging stations to be placed at municipal fleet charging sites and at the start of National Forest trails. Since iSun is based on a traditional former electrical contractor who has been in business since 1972, the company believes he has an advantage in terms of leadership experience. This was reinforced by the two recent staff additions, with Daniel Dus becoming president of the utilities division after working as director of Adani Solar USA, and Andy Mathis as a new board member after being vice president at Hobbs & Towne, an executive search. clean technology company. With the recent de-SPACing in January, the company now has $ 20 million in cash to pursue these new growth avenues, which should allow for improved financial performance compared to other EPC companies.
Image 2: Source. An overview of the Green Bond partnership program to help fund solar projects, which allows iSun’s potential to acquire the asset for a source of income.
With a current market cap of $ 100 million, it’s far from a risk-free investment. However, the company’s financial situation is stable and recent use of the financial markets has resulted in a strong balance sheet. iSun currently has $ 20 million in cash and $ 4.5 million in debt as of late. In addition, the company has a current backlog of over $ 81 million and represents a strong increase of 253% from the first quarter of 2020. Due to the favorable climate for solar projects, I expect that this type of growth holds, as the company forecasts a doubling of revenues for 2021 compared to 2020. That would increase annual revenues by $ 21 million to $ 42 million, and would correspond to a P / S of only 2.3x . For a small, rapidly growing business, this is a solid position for significant growth.
Image 3: Source. The current order book is growing strongly due to a favorable environment for solar and EVs, and should translate into revenue. Electric vehicle charging infrastructure will be an important requirement for the large number of electric vehicles expected to arrive by 2030.
Image 4: Source. While revenue growth may be easy to come by as an EPC, it will be important to ensure that profitability is solid as well. I expect that the stock price appreciation in the short term will be due to growth, but in the long term the lack of significant profitability will be a hindrance.
Looking at the most recent results filed with the SEC, I would say that for a micro-cap stock, the company is doing quite well. Revenue increased 82% year-on-year to $ 7.3 million while the net loss was $ 3.1 million. Profitability is low for the year as the company focuses on alternative growth paths, but says it will seek stable EBITDA expansion through 2021. Additionally, a large portion of the costs are associated with payments. for the recent IPO and redemptions of warrants. The expected gross margin rate of 17% to 19% for 2021 is typical for an EPC company, but I will be looking to see it increased quickly with the deployment of higher margin solutions.
Image 5: Source. Revenue grew 80% year-on-year in the first quarter of 2021, a good sign for iSun as 2020 saw negative growth due to the pandemic. Restatements in 2020 and earlier are due to a change in the way warrants are reported for an SPAC, not negligent action due to the company (page 14 of the most recent filing).
Expectations for a long position
iSun is another speculative choice in the renewable energy sector, and I will leave it out of the AMR portfolio for now and add it to my speculative bin instead. The top three criteria I’m looking for in the long term are maintaining high order book and revenue growth as needs are not likely to be lacking over the next few years, especially with interest rates continuing to be low. . Second, I will look for the company to have top-tier profitability for an EPC, with a transition to higher margin design, consulting, and engineering profitability like names like Ameresco (AMRC) or Stantec (STN), rather than as IEA (IEA). Low margins will contribute significantly to low rates of return and I will only add this to my main portfolio if iSun meets the first two criteria. Finally, I’ll be looking to get the company to stick to their plan to increase recurring revenue, but I’ll leave some time to get the infrastructure in place over the next few years first.
To meet these criteria, iSun will need to deliver on its promise for this new renewable energy-as-a-service business model. Right now, with the stock price down more than 50% from highs after iSun formed, it’s okay to start a small, high-risk position. However, I think the business has a good chance of at least 500% growth over the next five years if even progress is made to form significant recurring revenue streams. If the EPC side of the business remains a significant portion of the revenue, I can choose to put my money elsewhere, as the IEA sees lower valuations and already has a lot more revenue. I think another important catalyst to look for is the expansion of revenue to the solar belt region of the United States, as solar power will be much more efficient in those areas and the infrastructure for car shelters can be much more beneficial. It will be interesting to see how absorption is in the northeast though.
Figure 1: Google. Price movement since January, with the Nasdaq uplisting as iSun spiking rapidly to over $ 25 per share. Now that there is a bottom in the trend, I find it a good time to start a small position.
For now, I recommend a small position if you’ve got some risky money lying around, and I’ll be sure to update when more information becomes available. I’ll cover some of my speculative bets in future articles, so if you’re into micro-cap stocks, stay tuned!
Thanks for reading, and let me know what you think of this micro cap below!