EuroSite Power Close to Signing Several New Agreements
EuroSite Power (EUSP – $0.71) installs, owns, and operates Combined Heat & Power (CHP), and cooling systems at smaller industrial and commercial facilities. It provides these facilities with clean, reliable power, cooling, heat and hot water without any capital or start-up costs to the customer and at lower costs than charged by conventional energy suppliers.
In the first quarter, ended March 31, 2016, EuroSite Power reached revenues of US$687,032, an increase of 25.4% compared to revenues of US$548,054 for the same period in 2015. The strong improvement was driven by both a higher number of systems in operation and by larger units that had been taken into production.
Three onsite utility agreements for leisure centers may be close to signing. Also, a term sheet has been signed for a 400kW unit in a major hotel. Definite agreements for these four units have yet to be signed, but each project did already receive credit approval.
Thanks to the project financing agreements with Macquarie and Societe Generale, the Company can now handle the installation of larger units. Consequently, it will move towards being cash flow positive faster.
The Company’s gross margin, excluding depreciation, improved to 37.2% for the first quarter of 2016, compared with 24.3% for the first quarter of 2015; an outstanding performance as this exceeded the target of 35% set by management.
This is the true beauty of EuroSite Power. Its revenues are mostly predictable as the biggest contributing factor to sales is the number of cogeneration units in operation. That amount continues to steadily increase as the number of contracted customers and potential new customers grows both in the UK and mainland Europe. In addition, each unit that’s taken into operation comes with a 15-year contract, assuring EuroSite Power of a guaranteed, steady income. All of this makes the Company’s revenues grow almost on a quarter to quarter basis.
Moreover, EuroSite Power’s margins are growing, which will make it turn profitable sooner. It’s just a matter of time before the Company reaches that magic number of operational installations to make it become cash flow and net income positive.
Based on the intrinsic value of EuroSite Power’s shares derived from our model, we reiterate our buy recommendation for the Company with a price target of US$2.74, which is 286% above today’s stock price.
|Download the first quarter 2016 EuroSite Power Company Report.|
|Smallcaps.us Advice: Buy||Price Target: $2.75||Latest Company Report (pdf)|
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