Eguana Technologies Inc (TSXV: EGT) has established itself as a leader in the growing market for grid tied energy storage
SmallCapPower | August 16, 2017: Eguana Technologies Inc (TSXV: EGT), a manufacturer of power control solutions for grid interactive energy storage systems (ESS), could be in the limelight with its recent Australian deal. Eguana Technologies has been able to establish itself in the Australian market through the partnership with a capable national distributor, Itochu Corporation. The Australian residential storage market is expected to be the fastest-growing storage market in the world over the next several years. The $3.0 million deal is expected to significantly drive the top line over the next few years.
Demand for the Company’s AC Battery for residential solar storage installations is accelerating in Hawaii and is expected to be the primary driver of revenue growth for Eguana Technologies over the balance of the year. Eguana Technologies expects that Hawaii will lead the U.S. market in residential energy storage installations. The Company’s strategy is to build on its success in Hawaii to create global channel partnerships.
Investment Thesis
- Leader in power conversion and control systems for stationary energy storage
- Efficient operating model provides rapid scalability without significant capital expenditures
- Rapidly growing energy storage market to reach $16.5 billion By 2024
- Decreasing battery costs
Leader in Power Conversion and Control Systems for Stationary Energy Storage
Eguana Technologies has established itself as a leader in the growing market for grid tied energy storage. Recent partnerships with Tier 1 battery manufacturers and system integrators have paved the way for Eguana Technologies to also establish itself as a leading provider of power control solutions to the emerging home market in North America.
Eguana’s product design philosophy is to deliver a universal power management platform that is easily adaptable to all battery technologies, allowing battery manufacturers to offer complete energy storage systems and operators of distributed energy storage fleets to easily accommodate different battery technologies using a common control and communications platform.
Efficient Operating Model Provides Rapid Scalability without Significant Capital Expenditures
Eguana’s business model is not targeted towards selling product through distribution but to rather engage with selected partners through long-term supply contracts. This provides good visibility on short and mid-term demand.
Eguana Technologies operates an in-house manufacturing line at their headquarters in Calgary, Alberta. The capacity of the current line is 1,000 units/month. Through its global contract manufacturing partners, Eguana is able to add additional capacity quickly without requiring major capital investments. Through its operational structure Eguana Technologies has put itself in the position to ramp up production capacity quickly and flexibly adjust to the projected steep increase in demand.
Rapidly-Growing Energy Storage Market to Reach $16.5 Billion By 2024
According to leading research firm Navigant, the market for distributed energy storage systems (DESS) will grow from less than 200MW in 2014 to more than 12,000MW of installed capacity by 2024, which represents a total market opportunity of $16.5 billion.
Installed DESS Power Capacity by Application, World Markets 2014-2024
Decreasing Battery Costs
By 2020, experts expect battery costs to reach $250/kWh- $300/kWh, and commercial system costs to decline under $600/kWh, which is expected to further fuel the mass scaling deployment of stationary storage. Continued decreasing system cost for battery applications will improve the cost effectiveness and obviate the need for subsidies and are already cost effective in certain jurisdictions such as Germany and Australia. This is particularly true for Germany, where the spread between grid electricity rates and solar feed in tariffs continues to widen, while in California, commercial ratepayers can already achieve double-digit rates of return by reducing their demand charges.
Financial analysis
Sales and engineering services surged 86% to $328,594 in Q217 as compared to $176,272 in Q216. Product sales in Q2 2017 were $275,284 and were derived primarily in Hawaii, as permitting hurdles have been resolved and installations under the self-supply program have begun.
Net loss for Q217 decreased $60,214 over the net loss in Q216. The decrease in net loss is attributable primarily to lower finance costs. The decrease was partially offset by higher non-cash expenses including bad debt expense, inventory write down and share based payments.
Valuation and outlook
Eguana Technologies currently generates limited revenues and has reported losses at the operation and net level. Although Eguana Technologies trades at a high price-to-sales multiple of 39.21x given its low TTM revenues of $0.7 million, the multiple should come down going forward as the Australian deal will add incremental revenues over the next few years.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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