Summary: The SolarEdge IPO gets good marks for the banking team, company positioning and business strength but their market opportunity and technology advantages are less compelling given the proposed valuation of 2x the current revenue run rate. For example primary competitor Enphase Energy (ENPH) is trading at 1.4x. Finally we see more opportunity in some other energy-technology companies like Silver Spring Networks (SSNI.) Overall Rating = B
Banking Team = A
Goldman, Deutsche, Needham, Canaccord, Roth
Proposed Range $16-18, 7M Primary Shares, 39M shares out post-IPO, NASDAQ: SEDG
Company Positioning = B
SolarEdge provides technology like microinverters and power management systems to help enhance the efficiency of rooftop solar installations. There's a lengthy technology discussion but at the end case studies show rather limited gains in efficiency - on the order of 0.5 cents per KwH versus traditional systems.
On the corporate side the company has demonstrated their ability to have a fluid strategy based on market demand and opportunity.
Product is sold through 200 major solar installation companies like SolarCity (SCTY). Although the channel strategy can be a blessing in getting to the market it can prove challenging as competition intensifies.
Business Strength = B+
Revenues of $133M (up from $79M for FY13) with net income of YM for the year ended June 2014. So far in FY15 the company has already generated $M in revenue and nearly $6M in net profit.
Gross margins have been improving but today stand at just 21%. Future generations of product should be easier to manufacture and help to reduce expensive air shipment costs.
Operating expenses as a % of revenue have been declining - helping the company accelerate net profit growth with rising revenues and improving gross margins.
Company has no debt and low capital investment needs.
Technology = C+
The SolarEdge "optimizer" is evolving but still has another generation or two before it becomes sufficiently miniature and well-packed for reliability at scale. It's a technically solid solution but still needs more work to scale and be proven out. The technical and financial advantages of the system are measurable but not impressive.
Market Opportunity = C+
The company cites a global inverter market of $6.9B om 2013 which is expected to reach $7.8B om 2017 which isn't a very high growth rate. However "module-level" solutions are expected to increase their overall share of the market and grow from $326M to $957M over the same period. Using these figures it's clear that SolarEdge has a great market share and the market is growing - but it's not quite the "blue sky" opportunity that would justify a high valuation.
Valuation = C
At the midpoint of the proposed range SEDG would have a market capitalization of $663M or a little over 2x the current annual revenue run rate. Growth is strong and positive operating margins put the company in a strong position to continue to fund growth. However it's proposed at a premium valuation starting out with a market opportunity that appears smallish relative to the total market capitalization of the company.
Media Assets & Helpful Links
GreenTech Media has great articles on SolarEdge and their competition here.
Related Companies
Enphase Energy (NASDAQ:EMPH)
Silver Spring Networks (NYSE:SSNI)
OPower (NYSE:OPWR)
ABB (SWX:ABBN)
SolarCity (NASDAQ:SLCY)
Vivint Solar (NYSE:VSLR)
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