SolarEdge Technologies IPO

Summary: SolarEdge 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).

Banking Team = A

Goldman, Deutsche, Needham, Canaccord, Roth

Proposed Range $16-18

7M Primary Shares, 39M shares out post-IPO.


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.

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Disclosure:  We do not have any vested interest in the shares of this stock at the time of writing and publication. We may however take a position post publication and are not under any ...

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