Tuesday, 15 December 2020

SolarEdge Technologies - Portfolio Addition


Last month I acquired a holding in Enphase Energy which provides clean energy from solar combined with storage solutions. SolarEdge operates in the same space and I have decided to add this second solar energy company to my portfolio as the pace for the green revolution seems to be gathering speed as Joe Biden is about to replace Trump in the White House in January.

Like Enphase, the basic model is to maximise power generation from solar PV with their inverter solutions and thus reduce the costs of renewable energy for the consumer. Their products are sold in over 100 countries on every continent around the globe.

As renewables such as wind and solar grow around the world in the transition away from fossil fuels, so the centralised energy network will need to change to a system where energy is produced near to where it is consumed e.g. at the home of the consumer with roof-top solar PV combined with energy storage. This will create opportunities for new interconnected and decentralised energy networks which ensure a reliable connected service combined with low costs and stability.

SolarEdge is at the cutting edge of this transition to a more decentralised energy network with its cloud-based management tools which can link up small scale communities which use PV, storage and electic vehicles to create a virtual power plant.


Latest Results

Since listing on the market in 2015, SolarEdge has seen impressive growth in revenues - average 45% p.a. making it the largest PV inverter provider globally. Around half of revenues are from the US with a further 40% coming from Europe. Obviously revenues have been affected by the global pandemic this past year. According to the latest Q3 results to end September, revenues of $338m were up 2% on the previous quarter but down 18% compared to Q3 2019. Hopefully, with the roll-out of the vaccines, production can return to normal in the coming year.

Gross profits have increased by 4.5% at $351m over the first 9 months compared to the same period in 2019. Cash and cash equivalents have quadrupled from $247m to just over $1bn at end September 2020.

Conclusion

Solar capacity is expected to increase by 15% each year for at least the next decade and could be responsible for up to 50% of total energy requirements in many countries by 2050. According to the latest report from the International Energy Association, 90% of all new electricity generation this year will be from renewables. This means clean, green electricity will become the largest global power source by 2025 providing one third of the world's electricity.

Looking at 2021, the new Biden administration will be giving substantial support to the renewable energy sector. SolarEdge and Enphase hold around 80% of the market in the US for inverters and power optimisers and I expect them to be the logical beneficiaries of the green new deal which aims to make the US energy system carbon neutral by 2035.

Share Price past 12 months

Finally, just a heads up...both of these companies are currently held in the iShares Global Clean Energy ETF (also Vestas Wind, Orsted and Plug Power) so this is probably an easier way for investors who wish to gain access to this sector.

The shares have seen a good run this year, rising from $100 to reach a high of $315 in October. Obviously there is a possibility that they are currently over-priced but if they continue to grow revenues at anywhere near the pace of the past four years, I think there will be much more to come. The shares were purchased in my ISA at the price of $285 (which works out at £214 based on current FX).

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

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