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Solar Integrated Technologies (SIT)

Created:

18 April 2008

Written by:

Graeme Davies

BULL POINTS:

• Maiden profits expected in 2008

• Markets growing rapidly

• Government subsidies likely to support market

BEAR POINTS:

• Challenge to increase production to match demand

• Lacks European production facility

Solar Integrated Technologies (SIT), a developer of building-integrated solar roofing projects in the US and Europe, has had a chequered history since joining the alternative investment market (Aim), but its current management team have shored up its financial position and are poised to lead the company to its maiden profit in 2008.

SIT now appears to be at a genuine tipping point in terms of the size of its pipeline, ability to meet demand and the growing popularity of solar power in its key markets. The company continues to be active in the US, but it is in Europe where SIT has enjoyed its most significant growth of late. Germany remains a major market in Europe, but it is the most mature and SIT has had particular success in the past year in Spain, France and Italy, where government subsidies and feed-in tariffs are more generous. Opportunities are also on the rise in Greece.

SIT's product differs from the traditional solar panel affixed on top of a building or hillside. Its solar panels are fully integrated into the roofing of buildings, and are particularly suited to warehousing and logistics buildings, although the company regularly completes projects on public sector buildings such as schools in the US. In some European countries this 'building-integrated' model attracts higher feed-in tariffs than traditional solar panel projects.

One of the key pricing pressures in the solar market has been the tight supply of silicon and, hence, its high price. But SIT has an advantage on this front in that its amorphous silicon panels, bought from the US outfit Uni-Solar, use a very small amount of silicon in contrast to traditional crystalline panels. The design of SIT's panels means they are more flexible in terms of the light quality and angle required to generate power, though they do cede conversion efficiency to traditional panels. The fact that SIT buys in its panels means it can install crystalline panels on demand.

SIT has blue chip customers such as Tesco, IKEA, Toyota, Carrefour, ProLogis, Audi and large commercial developers such as Rodamco. It has also begun winning multiple contracts such as the $70m (£35.5m) deal it won in Italy in December to install its panels on several buildings, a deal four times the size of SIT's largest previous contract.

And deals like these will help SIT maintain its impressive growth with analysts at KBC Peel Hunt forecasting that sales will almost double in 2008, having more than doubled in 2007. Importantly, for a company which has struggled due to taking on low-margin contracts in the past, the management's focus on margin improvement saw gross margins rise from 7.3 per cent to 17.8 per cent in 2007 with a focus on pushing this towards 20 per cent this year. And finances look to be on a firmer footing after a £14m fund-raising at 85p a share in December allowed debts to be paid down and provided working capital.

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At present, the company still produces everything in California, where an increase in shifts means that the total output should be equivalent to 30MW of power by 2009, although should demand continue to grow, SIT might find itself challenged to keep up during 2008. In addition, the strength of the European market, which is likely to account for more than 50 per cent of revenues this year, has prompted SIT to look into the prospect of establishing a similar capacity European production facility, even though selling dollar-priced product into Europe would appear to be an advantage with the euro so strong.

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