High gas prices are a key business driver. The price of natural gas is the
most important business driver for Sofame. The surge in prices earlier this
year, has made fuel savings a far more pressing issue for building owners and
manufacturing businesses. Dependent on the actual delivered price of gas,
the payback period for an organisation installing Sofame’s technology can be
anywhere between two and seven years.
Over 300 successful installations and a ‘blue chip’ list of customers provide
testimony that Sofame can deliver improved efficiency and reduced fuel
consumption whilst cutting greenhouse gas emissions. Hospitals, airports,
schools and industrial and commercial factories have all benefited from
Sofame’s technology. As boilers and heating units are only changed
infrequently, systems can be effectively upgraded without disruption
or dislocation.
Reducing costs, curbing fuel usage and earning carbon credits is a powerful
combination in a more enlightened age of environmental responsibility. Those
organisations which do not abide by ‘green principles’ are likely to face higher
taxation and penalties for non-compliance. Lower fuel consumption brings
fewer greenhouse gas emissions, delivering potential carbon tax savings;
these in turn may qualify the owner for carbon credits.
A highly incentivised new management is overhauling the way Sofame does
business and has produced a detailed marketing plan, with an impressive
prospect pipeline from its existing manufacturers’ representatives. New
distributors have been signed-up in both North America and Europe, with
clearly defined territories and targets.
A planned finance subsidiary could be the key to increased sales. Sofame
is planning to establish a finance subsidiary which would own and finance
the systems that customers would have installed. Customers would have
no up front costs and would share future energy cost savings with Sofame
Finance. Management believes this model could be a route to greatly increase
future sales.
The key is execution. Management’s ambitious marketing plan 2009-2013
envisages a substantial step change in the company’s fortunes. Ultimately,
the company’s valuation will be dependent on the ability of management to
execute this plan. Although we have evidence of an extensive prospect pipeline
over the next two to three years, before we feel comfortable in projecting such
numbers as revenues, we need to have evidence that the pipeline is being
transformed into firm orders. Hopefully this will become evident over the next
few quarters, when we can re-evaluate our assumptions. As such, our scenario
analysis captures this caution, whilst mindful that even the best laid plans can
receive unexpected setbacks. On the basis that the business can accomplish
our core scenario illustration we value Sofame at C$0.21, or a 10.5 percent
premium to the current share price of C$0.19.
