Wednesday, August 31, 2011

Energy Mad IPO: A Closer Look

The Energy Mad IPO (see the prospectus for detail) is a coming listing that will be welcomed by the NZX but what can investors expect from this company, why are they going to the market with an IPO when all they want is 5 million bucks and what about intense competition from large multinational electronics companies who pop out the bulbs this company makes in their billions.

Lets have a closer look should we.

Management at Energy Mad [MAD.NZX] have put an IPO value on the company of $37,677,684 million, $32,677,684 million of that figure will be held by existing shareholders pre-IPO and up to 10 million shares will be available to the IPO if it is oversubscribed. The shares offered are a dollar a piece.

Lets see if that value holds up.

The company say they manufacture a unique energy efficient bulb for the retail mass market (they sell them to power companies and the like who then on-sell to consumers) and that the technology used in them is protected by patent. The company places a large emphasis in this technology to justify their business plan, sales, revenue and profit for the next few years but a quick google of energy efficient bulbs will tell you that not only are other companies making similar claims for their bulbs but there is emerging LED technology for bulbs that puts the power savings well above the compact fluorescent light bulbs (CFLs) that Energy Mad are selling.

The company tackles the issue of emerging LED technology on page 34 of the prospectus and naturally they are skeptical for its uses, cost, light output and LEDs other benefits over CFLs but it is worth pointing this out.

On this count alone a potential investor would have to question the company and its claim to have "unique technology" that has few competitors. They do presently and have future competition from emerging and future technology.

Lets move on to some of the facts and figures.

The company has not made a net profit since 2007 (accounts do not go back further than that in the prospectus) and revenue has been very patchy in the last 5 years with only a tiny increase since 2007.

The company has made much of a dramatic increase in futures sales but its past performance certainly would not be a good indicator of a future bonanza.

Their two year projection below maps out an ambitious revenue and net profit that increases
substantially on previous years. The 2012 projection is more than $5 million higher than the just over $8 million sold in 2011 and this sort of increase has thus far never been achieved.



The company carries just over $1.07 million in borrowings and some of the IPO funds will be used to pay that debt down.

The Energy Mad IPO will not be for everyone. It is a high risk proposition in a company with a patchy track record and high expectations for its future. The $37 million in value placed on the company is over the top given the company lost over $80,000.00 in 2011 on revenue of $8.6 million and the company itself only expects a $2.1 million profit for 2012 on revenue of $13.6 million. Perhaps half that value would have been more appropriate given the company's patchy financial past.

If you think this company will be able to satisfy their own high expectations and defy their past operational history then this IPO is for you. If you are skeptical for reasons of questions over the uniqueness of their technology and the competition that is coming from emerging and new technology then just buy an Ecobulb instead.

Footnote

The final nail in the coffin for me is that the company is involved in trading tooth fairy carbon credits to make its product look more appealing to the green conscious public in an attempt to curry favour with governments so they can sell their "green" bulbs to government backed environmental agencies with a taxpayer subsidy not far behind - in fact a small portion of the company's revenue already comes from the taxpayer.


Energy Mad IPO @ Share Investor


Energy Mad Prospectus
Discuss Energy Mad @ Share Investor Forum

From Fishpond.co.nz

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Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz

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c Share Investor 2011