Sabien Technology Group (SNT) – Kamikaze Pilots or Astute Merchants
A report by market analyst Jon Levinson.
Sabien Technology owns a clever device “M2G” that increases the efficiency of any commercial boiler. It can be retro–‐fixed and pays for itself within two years and in energy efficiency a three–‐year payment is considered commercially attractive. Around 70% of customers need to try the device before buying, so last year free pilots (trials) were offered which has substantially increased the sales pipeline.
Until June 2015, potential customers paid for pilots. This policy elongated the sales cycle, which can take anything up to two years and income was reliant on orders being closed from a small number of pilots. This has led to lumpy orders and a greater potential for contract delays upsetting market expectations.
The Trading Update on the 2 June 2016 underlined this problem as Sabien reduced expectations for the June 2016 year-end to a loss of £1.7m from a forecast loss of £1.3m on reduced sales to around to £0.9m as administration costs increased before sales and thus depressing the share price.
The jury is out on whether the Free Pilot Policy, which was initiated last June, will accelerate sales growth and fundamentally change the business and earnings profile. There has been a significant increase in the number of pilots from 8 to 34. The unknown factor is the timing of converting the sales pipeline, currently at £11.4m, reported on 2 June 2016, into orders. Over the next four months, before reporting final there will be a heightened sense of order anticipation.
Sabien’s pilot policy is at a ‘white–knuckle’ stage. We can only guess at the conversion rate and the timescale of conversion of the Pipeline into firm orders. Even making moderate assumptions, the order book in the UK alone could build substantially to an aggregated gross profit of £16m–‐£24m in five years.
The execution risk is mitigated by the management team’s expertise of delivering, measuring and verifying pilots as well as the debt free balance sheet. A further factor is that the device sells for less than £2,000 fully fixed. This will hopefully allow an increasing number of multi‐site customers to roll out the implementation of this money saving and CO2 friendly technology at an easy-to-budget rate.
A report on Energy Efficiency (EEVS.CO.UK, June 2016), showed a decline in sales of large capital projects and that supplier confidence had fallen to an all—time low. This is partly a result of the Government’s management of energy efficiency policy. It also stated that an EU exit would most likely lead to a number of legislative drivers and incentives being removed. Consequently ‘Remaining’ may be a benefit to the sector.
The darkest hour is just before the dawn. From this depressed price, if the increased pipeline is converted, the shares have potential. We are convinced that the ‘brave’ Free Pilot policy is more likely to lead to a stepped increase in sales than a crash-landing!
Link here for the full report Sabien-Technology-Report-06-16