Photo: Svanes, Creative Commons, Flickr
Germany's top solar company SolarWorld has been described as the Exxon Mobil of solar power, and it isn't cheap on a valuation basis. But short-term players might want to keep an eye on the stock after an analyst day on March 28.
SolarWorld (SWV.DE – Last trade €59.80) is among the top three of the solar power industry worldwide, and is the leading provider of solar power technology in the United States. The company combines all stages of the solar value chain, from the raw material silicon to solar power plants. They recently announced plans to reach 1GW production capacity in 2010. The new estimate roughly doubles its old target, but the announcement has not yet received the credit it deserves.
SolarWorld did not provide any quantitative insight into its sourcing situation, and investors are reluctant to push the shares higher on the announcement. The company's analyst day on March 28 provides an opportunity for management to provide higher operational visibility, and could add some upside to the share price.
There is simply no excuse for their lack of operational visibility. It is almost impossible to predict how much silicon will be available in 2009 or 2010, but surely SolarWorld has very good insight on the amount it has sourced via its long-term contracts? Most solar companies provide this guidance, so SolarWorld won't be giving away trade secrets. In order to assess their future growth potential, investors want to know the likely minimum amount of material the company believes it will be able to source for the coming years. Doubling their capacity expansion target looks great on paper, but can they deliver?
The company recently took a big step in expanding their capacity with the €30M acquisition of a ready-to-use mono-Si wafer production plant in Hillsboro, Oregon. SolarWorld plans to invest €300M until 2009 to expand the plant's production to 500MW (half their 2010 target). Citigroup called the €30M price tag for the facility "too good to be true".
With more than €200M in cash at year-end, finances should not pose a problem for the company going forward. The company recently boosted its FY dividend payment to €0.28 from a prior payment of €0.125. They have increased dividend payments for the third year in succession, and attach a high priority to the dividend continuity in its relations with shareholders.
SolarWorld reported FY06 revenues of €515M, ahead of consensus at €495.4M, but FY06 underlying EBIT was 33% below analyst estimates. The earnings release did not provide enough information to explain why underlying EBIT was underperforming expectations, and hopefully the company could use the analyst day to provide some information on underlying trends.
Given the company's lead in the U.S. market, investing into SolarWorld is a bet that solar demand will pick up in the U.S. If management uses the upcoming analyst day to provide higher operational visibility, the share price could gain. If the company does not provide any quantitative insight into its sourcing situation, I'd stay on the sidelines.
Disclaimer: I do not own any stocks mentioned above. I do not give investment advice. Do your own research. Do not rely on anything in this blog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security.