By Steven Ralston, CFA
ForceField Energy (FNRG) has expanded into two new “green technology” segments: LED lighting and ORC (Organic Rankin Cycle) technology. ForceField’s growth initiatives into these two alternative energy industries are transforming the company, which should benefit from the secular trend towards more efficient energy generation and consumption. Multiple new relationships and trials have been announced over the last few months. Also, in October, ForceField Energy was approved for listing and registration to NASDAQ. The up-listing should benefit the company through better institutional investor awareness and increased share liquidity.
ForceField’s management team seeks out the favorable investment opportunities in the emerging and fast-growing “green energy” and alternative energy markets. In 2012, ForceField entered the LED lighting and Organic Rankin Cycle (ORC) systems industries through an exclusive distribution agreement with Shanghai Lightsky and the acquisition of a controlling interest of TransPacific Energy, both in August 2012. The company now operates in three business segments: the LED lighting, ORC systems and solar energy markets.
Management’s primary focus is to generate increasing revenue streams from the LED and ORC businesses. ForceField’s strategic LED business plan involves aggressively introducing Lightsky’s LED products in the North American, Latin American, Caribbean and European markets by rapidly building a network of sub-distributors that can target large-scale customers (commercial, industrial, institutional and governmental) that would benefit from upgrading to LED lighting. ForceField offers commercial LED lighting systems and products through at least nine sub-distributors and by bidding on large commercial projects. Several commercial trials are underway, for example, with QSR International at fast-food restaurants, Sabia Corporation at Fantastic Proceres Casino in Guatemala and Empresa de Servicios Públicos de Heredia for streetlights in Costa Rica.
ForceField Energy offers competitive pricing for quality turn-key LED lighting solutions and can provide attractive financing options so that the reduction of maintenance and operating costs can fund the cost of installation and operation within three years of implementation. The company has signed agreements with two unnamed “Top 10” U.S. banks for LED project financing support. An ideal client is a multi-location entity where economic evaluations strongly influence the decision-making process. The rationale to transition to LED lighting products is compelling considering the relatively short payback period and long-term cost benefits.
ForceField Energy has enlisted sub-distribution partners in the U.S (International Sales Network), Germany (Prime Energy Solutions AG) and Ireland (First Choice Energy) to aid in the marketing and sale of LED installations and retrofits. Most provide energy saving consultancy services that can demonstrate the economic benefits of converting to LED lighting. The company is pursuing several direct distribution opportunities in the U.S., Latin America and the Caribbean, notably in Costa Rica and Guatemala.
The conversion from traditional lighting to energy-saving LED lighting is expected to continue at a rapid pace. Consumption of LED lamps in the U.S. increased 50.5% in 2012. It is possible that LED technology could dominate the lighting market by 2016 as the marketplace adopts energy-efficient LED lighting. ElectroniCast Consultants forecasts that U.S. consumption of LED lighting will reach $2.77 billion in the year 2017, up from the $891 million recorded in 2012. Navigant Research forecasts that global revenue from LED lamps will grow to more than $8.5 billion annually in 2021 from approximately $1.5 billion in 2013.
Through a controlling interest in and non-exclusive distribution agreement with TransPacific Energy, ForceField is installing two ORC units at Zibo Qilin Fushan Iron & Steel Company in China. The units that convert waste heat into electric energy will be owned by ForceField who will sell the electricity generated to Zibo Qilin at a discount to the local utility’s price. The anticipated annual revenue run rate is estimated to be approximately $550,000.
In March 2013, ForceField Energy entered into a cross-distribution agreement with PowerOneData International, giving ForceField the ability to distribute smart meters. A trial for the installation of residential electric smart meters by Empresa de Servicios Públicos de Heredia (a Costa Rican manager of utility services) has already been announced.
Management is very optimistic that many of the current trials and LOIs will convert into large contracts for LED systems to be installed on a continual basis into the future citing that over $125 million in revenues would be generated over a multi-year period if the current LED and ORC projects under signed initial agreements, Letters of Intent (LOI), bids and trials are successfully financed and completed. More than $40 million in LOI are in Costa Rica alone.
ForceField Energy is a manufacturer, distributor and licensee of green energy products and systems, including 1) LED lighting though a five-year exclusive distribution agreement sell and distribute LED lighting products manufactured by Shanghai Lightsky Optoelectronics Technology Co., Ltd. (aka Lightsky) in North American, Central and Latin American and parts of Europe, 2) ORC systems through its controlling interest of TransPacific Energy, and 3) the production and distribution of trichlorosilane (TCS), an critical component in the process of manufacturing solar cells.
Utilizing our benchmark valuation methodology, we expect ForceField’s stock to trade into the top quartile of our estimated valuation range of 1.1 and 3.2 times normalized sales, which projects at price target of $6.50.
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By Steven Ralston, CFA