Management had
guided for sales in a range of $25 to $30 million in the June 2018 quarter. The good news was that ReneSola managed to squeeze
more profit from the lower level of sales than it did a year ago on higher
sales. Thus operating income was the
same at $5.9 million.
It appears
ReneSola shareholders are a tough bunch to please. Recent trading volume is well below the pace
a year ago and even six months ago. The few traders still following the company bid
the stock down in the first day of trading following the report. The shares are now trading at 8.9 times
forward earnings.
The shares had
already gone through something of a free fall beginning in late 2015, when the
company announced intentions to reduce reliance on its solar module
manufacturing business. The sale of the
manufacturing unit to the company chief executive office announced in June 2017,
did not help win many new friends even though it meant shedding US$450 million
in debt. The deal was completed through the
issuance of 180 million in new shares to the new manufacturing corporate entity
in the control of RenaSola’s CEO.
Of course, the
lower valuation is expected given that after restructuring the remaining
company was much diminished in size.
Furthermore, RenaSola’s common stock had been diluted. A lower valuation and thus lower stock price
were expected. The deleveraging of the
balance sheet to a 30% debt-to-equity ratio seems to have been lost in the
discussion. RenaSola shareholders ended
up with $90.5 million in net tangible assets at the end of fiscal year 2017, compared
to $66.1 million a year earlier before the restructuring was completed. On a per share basis tangible assets increase
to $0.17 compared to $0.14 per share before the deal was completed.
The rest of the
valuation story for RenaSola may be in its new business model as a project
developer and engineering firm.
Notorious for delivering uneven sales and earnings, project developers
have never commanded the valuation multiples of their more glamorous technology
cousins. This is the especially the case
for solar technology innovators that tend to get considerable attention as
members of the elite and forward thinking renewable energy industry. According to New York University, a broad
group of engineering and construction firms, whose activities are similar to
ReneSola’s consulting and project development work, is currently trading at
24.83 times forward earnings.
Semiconductors producers, including solar module manufacturers, are
trading at 67.96 times forward earnings.
Of course,
ReneSola is not trading even with its new peer group of engineering firms. It is a Chinese firm that recently sold off a
significant portion of its assets in a related-party transaction. Even if that red flag had not been raised,
the resulting business model created by the restructuring has not been well
received by shareholders.
Neither the author of the Small Cap Strategist web
log, Crystal Equity Research nor its affiliates have a beneficial interest in
the companies mentioned herein.
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