ForceField Energy’s Aggressive Rollup Strategy Will Drive Impressive Growth
VANCOUVER, BC / McKinsey projects total global lighting market revenues will grow to $150 billion a year by 2020. Within that forecast LED lighting will make up the majority of that increase rising to $90 billion annually by the same year or a CAGR of 30%. By 2020, LED’s will make up 60% of the lighting market. Another hugely positive effect; lighting costs will be reduced by 30% a year over the same period. Dramatically lower energy costs, less maintenance, better for the environment and more aesthetically pleasing.
And as an investor, wouldn’t you like to participate in that significant, long-term growth?
The lack of carbon dioxide emissions from this technology and environmentally motivated government regulation worldwide effectively eliminating most incandescent light bulbs has also helped to ramp up demand. But, as with any fast growing industry, the best and brightest will survive. And prosper.
LED lights are considered "green" products due to the absence of any dangerous chemicals and their ability to significantly reduce energy consumption by 50% to 85% over traditional lighting products depending upon the application.
Example: a commercial facility that pays $10,000 annually to power the lighting systems is offered the LED technology to reduce that cost overnight to $3,000 with less than a two-year payback; and in most cases the potential for a “no money down” purchase. No brainer.
"The key to success in this market is not only to provide a complete selection of great products, but also custom solutions", stated David Natan, CEO of ForceField Energy (NASDAQ: FNRG) in an exclusive interview with Financial Press. "Our roll-up acquisition strategy, which started in earnest with American Lighting, combined with our anticipated organic growth, has enabled us to initiate revenue guidance of $12-15 million for 2014. Although the LED arena is a competitive marketplace, our plans to eventually become a significant player in this burgeoning market, are on track."
The economics of LED lighting are now compelling. And the higher the in-country electricity costs, the faster the payback. In North America, the use of LED lighting reduces costs to an approximate two-year or less payback/ROI depending on the cost of electricity in a particular jurisdiction. In developing countries where power is considerably more expensive, that period is reduced to about a year, or less. No matter the location or situation, the significant metrics in favor of LED lighting are unquestioned.
While ForceField has one other segment, a waste heat recovery technology, and a synergistic product, "smart electric meters" the vast majority of the Company’s efforts are focused on the LED market. To that end, management runs lean and mean: having taken very minimal salaries over the previous four years and with current salaries and headcount significantly below their NASDAQ peers. Additionally management owns 25% of the Company and has voluntarily locked up their stock since 2010. That puts them on the same playing field as investors. If the Company doesn’t grow, management is the first to lose. That commitment is certainly unique amongst emerging NASDAQ companies.
In April 2014, FNRG closed the acquisition of the award-winning San Diego-based American Lighting and Distribution who specializes in energy-efficient commercial lighting retrofits for facilities including warehouses, manufacturing buildings, offices, casinos, retail stores, parking lots, schools and many other enterprises.
ForceField’s Executive Chairman Richard St Julien stated: "With more than 20,000 customers spanning multiple industries, American Lighting will be a significant driver of future revenue growth and profitability for ForceField and its stakeholders. This acquisition significantly strengthens our sales, marketing and installation capabilities."
In 2013, American Lighting generated revenues of approximately $7.0 million with an adjusted EBITDA margin of 13%. It also brings a very impressive roster of clients including Walmart, Home Depot and various 5 star hotel chains, among others. During the past three years, American Lighting has performed more than 2,500 installations, predominately in California.
Unlike the vast majority of OTC companies who will never get listed on a national exchange, FNRG was able to uplist to the NASDAQ due to their management team’s expertise, conservatism, and knowledge of public companies. ForceField has a clean balance sheet and has a long-term and diverse shareholder base.
One of several competitive advantages is its ability to negotiate extremely favorable pricing from a multitude of leading LED suppliers worldwide, as well as the ability to surface sales leads with high profile target companies without incurring significant selling expense. As a result the Company can offer very competitive products and solutions.
FNRG’s vision for the LED marketplace is to stay "nimble", to remain a distributor and provide a comprehensive range of state-of-the-art LED products at highly competitive pricing from numerous LED suppliers.
To give some valuation context, one of ForceField’s NASDAQ peers in the LED industry provides an example:
Trading at a market cap of approximately $180-$200 million during the past two quarters, this peer generated revenues of $26 million in 2013 and lost a staggering $20 million dollars doing so. By comparison, FNRG currently trades at $5.34 but has a market cap of only $86 million, with $12-15 million in revenue guidance for 2014. This revenue guidance does not include potential additional revenue from four very large contract bids amounting to approximately $111 million dollars, or from any additional acquisitions in 2014. While there are no assurances that they will “win” any of these incremental high value contracts, one or multiple wins would represent a very material amount of additional revenue that could be realized over a period of years. Therefore, when considering their strong management team, and core business coupled with an aggressive acquisition strategy operating in a “hot” sector, ForceField appears to have an under-valued stock at current levels.
In summary, ForceField develops solutions, makes strategic acquisitions of quality companies at reasonable multiples, and keeps its burn rate and share dilution at minimal levels, as it grows.
That’s called management.
FNRG trades at $5.33 with a market cap of $85.57 million.
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SOURCE: Financial press