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Analysis Industrial Solar: "Potential remains despite short term challenges"

Detta är en betald analys på uppdrag av Industrial Solar Holding Europe utförd av Analysguiden

Pandemic impact hampers acquisition results

The big news during 2020 has been the acquisition of SolarSpring which means Industrial Solar greatly expands their product offerings. SolarSprings sales of around 5 million SEK per year has likely been severely hampered by the Covid-19 pandemic. Thus, the real effects of the new product portfolio have likely been postponed and we expect to see increasing sales during the next year as business activities overall pick up. The company has recently announced the sale of two of their membrane distillation units to universities in Canada and Abu Dhabi, proving the technical viability in the system. Capitalizing on this success is vital in the coming quarters, in order to prove not only the technical abilities but also the commercial potential.

Important funding from partnerships and projects

Financially, the company exits the third quarter with cash and cash equivalents of about 25 million SEK. Free cash flow for the first nine months of the year amounts to about -7.3 million SEK (-9.3). The company thus has enough liquidity on hand to cover the next coming quarters. However, cash flow for 2020 so far should be unusually low as sales and marketing activities has slowed down which reasonably should have decreased costs. An increased burn-rate is to be expected once sales pick up. However, due to the many projects and partnerships the company is participating in they expect funding of about 2.5 million euros the coming 2-3 years. This will in the short term, before larger growth and profitability, be a key factor in ensuring the financial strength of the company. Further share issues or other financing options are possible the coming year, but it does not look urgent.

The way forward is commercialization

Industrial Solar has proven that they possess the expertise and technical know-how for successful clean industrial solutions. The next step is using this to create large growth in sales and commercial success. Easing Covid19 restrictions, larger political pressure for green regulations and increasing sales will be key the coming year. We expect the last quarter to be relatively calm, considering pandemic impacts and seasonal factors. Risks are still substantial, considering the large reliance of on public support and the overall nature of this emerging market. We adjust our projections for the coming years, to reflect the lower than expect result due to Covid-19. We subsequentially adjust our short-term motivated share value down to 5.2-7.3 SEK. This is using a DCF valuation with a 15 percent discount rate. Additionally, relative comparisons to the sector and industry as a whole show that a valuation in this range seems reasonable. 2021 has the potential to be an exciting year for Industrial Solar and we look forward most of all to an accelerating commercialization process.

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