SolarBank Corporation Launches Canadian IPO Plan (Private:SLRB:CA)

CandyRetriever/iStock via Getty Images

A quick look at the SolarBank

According to a SEDAR registration statement, SolarBank Corporation (SLRB:CA) has applied to raise $1.9 million in a Canadian IPO of its common stock.

The company acquires, develops and operates solar energy Properties in Ontario, Canada, Province and in the United States.

I’m waiting for SolarBank Corporation to go public as I’m not a fan of small companies operating on low margins.

SolarBank overview

Based in Toronto, Canada, SolarBank was formed to develop and operate solar energy projects in Canada and the United States.

Management is led by President and Chief Executive Officer Dr. Richard Lu, who has been with the company since August 2014 and was previously the Managing Director of Sky Solar Holdings and the Chief Conservation Officer and VP of Toronto Hydro Corporation.

The Company has completed the construction of solar projects for numerous projects as shown in the map below:

Company Project History (SEDAR)

As of June 30, 2022, SolarBank has booked $1.3 million in investments at market value from investors.

SolarBank – customer acquisition

The Company markets its various services through its direct sales and marketing activities to corporations, electric utilities, cooperatives and local governments in Canada and the United States.

The company’s management team has built over 600 C&I projects in Ontario, Minnesota and New York.

Salary and wage expenses as a percentage of total revenue have fallen as revenue has increased, as shown in the following figures:

Salary & Wages	Expenses vs. Income
Period	percentage
FYE June 30, 2022	17.4%
FYE June 30, 2021	26.4%

click to enlarge

(Source – SEDAR.)

The Salary & Wages Efficiency Multiplier, defined as how many dollars in additional new revenue is generated for each dollar spent, was 1.6x for the most recent reporting period. (Source – SEDAR.)

Market & competition of the solar bank

More than 2,455 gigawatts of renewable energy generation were installed in 2021, according to a market research report by Expert Market Research.

This equates to a projected CAGR of 7.6% from 2022 to 2027.

The main drivers for this expected growth are the desire of governments, companies and individuals to decarbonize energy production for a variety of applications.

Solar power is expected to be a major contributor to this growth due to increased adoption in countries such as India and China, which are making large investments in solar energy infrastructure. Additionally, falling prices and advances in technology are helping propel the growth of the solar energy market.

In addition, the solar industry is the third largest source of renewable energy after hydropower and onshore wind power.

Key contestants or other industry participants include:

• Swineton Renewable Energy

• Cypress Creek Renewable Energy

• Mortenson

• arraycon

• helix electric

• Rosendin Electric

• signal energy

• Black & Veatch

• HCS Renewable Energy

Financial performance of the SolarBank

The company’s recent financial results can be summarized as follows:

• Increasing topline earnings

• Reduced gross profit and gross margin

• A swing to operational loss

• Positive cash flow from operations in fiscal year 2022

Relevant financial results from the Company’s registration statement (in US dollars) are as follows:

total revenue
Period	total revenue	% variance vs. before
FYE June 30, 2022	$7,546,238	38.8%
FYE June 30, 2021	$5,436,470
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
FYE June 30, 2022	$1,454,946	-22.4%
FYE June 30, 2021	$1,874,003
gross margin
Period	gross margin
FYE June 30, 2022	19.28%
FYE June 30, 2021	34.47%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
FYE June 30, 2022	$(266,804)	-3.5%
FYE June 30, 2021	$101,252	1.9%
Overall result (loss)
Period	Overall result (loss)	net margin
FYE June 30, 2022	$23,172	0.3%
FYE June 30, 2021	$ (147,939)	-2.0%
Cash flow from operations
Period	Cash flow from operations
FYE June 30, 2022	$126,697
FYE June 30, 2021	$(1,986,796)
(Glossary of terms.)

click to enlarge

As of June 30, 2022, SolarBank had $689,663 in cash and $6.5 million in total debt.

Free cash flow for the twelve months ended June 30, 2022 was $118,579.

Solar Bank IPO details

SolarBank intends to raise $1.9 million in gross proceeds from a Canadian IPO of its common stock and is offering 3.4 million shares at a proposed price of $0.56 per share.

The IPO will not be marketed to investors outside of Canada. No US SEC filings have been made.

No existing shareholder has expressed an interest in buying shares at the IPO price.

Assuming a successful IPO, the Company’s enterprise value at the IPO would be approximately $11.1 million, excluding the impact of the agents’ over-allotment options.

The free float to outstanding share ratio (excluding agent over-allotments) will be approximately 15.2%. A number below 10% is generally considered a “low float” stock, which can experience significant price volatility.

Management says it will use the net proceeds from the IPO as follows (in Canadian dollars):

Proposed Use of IPO Proceeds (SEDAR)

Management’s presentation of the company’s roadshow is not available.

With respect to pending lawsuits, the Company has filed lawsuits against the Ontario Department of Energy, IESO and others for $500 million in lost profits plus development costs and punitive damages.

The lawsuits allege “abuse of public office, breach of contract, causing breach of contract, breach of the duty of good faith and fair dealing, and conspiracy leading to the wrongful termination of numerous contracts.”

The listed agent for the IPO is Research Capital Corporation.

Valuation metrics for SolarBank

Below is a table of relevant cap and valuation numbers for the company:

Measure [TTM]	Crowd
Market capitalization at IPO	$12,437,550
Enterprise value	$11,146,317
price / sale	1.65
EV / Revenue	1.48
EV / EBITDA	-41.78
earnings per share	$0.00
operating margin	-3.54%
net margin	0.31%
Ratio of float to shares outstanding	15.17%
Proposed IPO midpoint price per share	$0.56
Net Free Cash Flow	$118,579
Free cash flow yield per share	0.95%
Debt / EBITDA multiple	-3.72
investment rate	15.61
sales growth rate	38.81%
(Glossary of terms.)

click to enlarge

(Source – SEDAR.)

Commentary on the IPO of SolarBank

SolarBank Corporation is seeking investments in the Canadian public capital market to continue its growth and expansion initiatives.

The company’s financial metrics resulted in increased revenue, lower gross profit and gross margin, operating loss but positive cash flow from operations in FY2022.

Free cash flow for the twelve months ended June 30, 2022 was $118,579.

Salary and wage expenses as a percentage of total income have fallen as income has increased; The Salary & Wages efficiency multiplier was 1.6x in the last financial year.

The company currently plans not to pay dividends and to retain future profits to reinvest in the company’s growth initiatives.

SolarBank’s trailing 12-month CapEx ratio was 15.6x, indicating that it has spent very little on investments relative to its operating cash flow.

The market opportunity for the construction and management of solar energy projects is large and is expected to increase in the coming years as the US and Canada seek to reduce their carbon footprint and move towards greater use of renewable energy sources.

The main risk to the company’s prospects is its small size and undifferentiated offering.

However, the company is suing the Ontario Department of Energy and others for over $500 million, so the outcome of those lawsuits is a real wild card.

As for valuation, SolarBank Corporation management is asking investors to pay an EV/sales multiple of around 1.5x at a relatively high growth rate from a small sales basis.

SolarBank is a small company operating in an industry with a number of large players and at its current size it has very small margins.

I’m waiting for SolarBank Corporation to go public as I don’t favor small companies that operate on low margins.

Estimated IPO Price Date: To be announced.