We know the LED lighting industry has been growing steadily on a global scale. It is also well known that it has a potential for generating work worth hundreds of billions of dollars as businesses as well as households slowly make the transition to LED lights. As the industry grows so will the companies that look to make money in this industry. There was one company in particular that I believe has good growth potential and has reinforced my thoughts with recent sales contracts. That company goes by the name of ForceField Energy (FNRG).
The" big boy" in this industry is a company called Cree (CREE) and I will talk more about this company later. But the alliance that ForceField Energy made with another well-known international LED manufacturer out of China will be one of the keys to its success. Let's take a look at this company, its fundamental and finances, as well as the industry as a whole.
ForceField's Alliance with Lightsky
The company recently reached an agreement with Shanghai Lightsky Optoelectronics Technology Co. Ltd. for exclusive distribution rights in North America of its diode (LED) lighting fixtures is used in a vast array of applications.
Lightsky provides light for large commercial and institutional usage with a deep portfolio which includes but is not limited to:
- Illumination LED lighting
- LED Video Display Systems
- Architectural LED lighting
Using higher-quality diodes and proprietary circuitry, Lightsky's LEDs can achieve a 60,000 hour rated life. This performance exceeds all other competitors.
LED Market Size
LED technology is superior in lifecycle, operating costs and energy consumption to incandescent and fluorescent fixtures. According to the US Department of Energy, there are more than 2.5 billion fixtures in commercial and industrial properties throughout the United States that will eventually make this transition.
Replacing incandescent and fluorescent fixtures in commercial and industrial buildings will create an industry estimated in the hundreds of billions of dollars. FNRG is well-positioned with its alliance with Lightsky because the company has a great product and is well known.
Why a Change to LED?
I recently wrote an article about DuPont's (DD) transition from a chemical company to an Agri-science company focusing on taking on the challenges as the world's increasing populations. Being able to produce enough food and energy to accommodate the growing population will create enough opportunity for the company.
Like DuPont, the question of energy and its consumption is the very reason the LED market is being created. This is an opportunity waiting to become an industry. As we grow more frugal in our use of energy, we are demanding better efficiency from gas consumption in autos, electrical use of appliances and our lighting.
Look at these general statistics on LED lighting:
- 90% of energy pumping into incandescent light bulbs is wasted as heat (that's why they cannot be touched).
- LEDs will reduce energy consumption in lights by 75%.
- Cost replacements for LED lighting in commercial settings pay for themselves in a very short period of time.
- They are rated for 50,000 hours on average.
Government Incentives Help Grow this Industry
One motivation factor that companies can have besides energy savings is the government incentive program to switch to more energy-efficient light bulbs. Depending on the technology and amount of energy reduction, the government is offering any commercial entity anywhere from $.30 to $1.80 per square foot as an incentive to switch to "energy efficient lighting" which includes LED light bulbs. I can understand why they do this. The LED lights are more expensive and corporate buildings often require more than residential buildings and the incentive is designed to entice the company to spend the extra money.
FNRG's Marketing Strategy
The company will target larger customers where "green lighting" appears most important. These companies, such as hospitals, certain institutions and corporations are very economic minded and utility costs and incentives for using LED lighting will play an important role in their decision-making.
Examples of Recent Growth
For the last 18 months, the majority of the company's business has been focused on LED marketing in Latin America. The reason for this is because "kilowatt hour cost" is very high. Since the costs are so high, the change from traditional lighting to LED lighting will have the most significant amount of energy savings creating a compelling argument for change. Latin America may hold a large opportunity, but the company also has proposals and is involved in "trials" in Europe and the United States. The company is presently bidding over $125 million in business.
Samples of business/potential business for the company from its website shows how successful its sales has been as the company continues to grow:
- The company has a "three-year sub distribution agreement" with a company in Wiesbaden, Germany. An initial purchase order for sale and installation of LED lighting products was made for two public schools. If the installation is successful, an additional 243 schools could be retrofitted under the same agreement.
- A letter of intent has been signed for a project in Costa Rica worth about $21 million in revenue. This agreement will have ForceField installing 19,000 of its Model SL3 LED streetlights in the territory of the utility company, Empresa de Servicios Públicos de Heredia.
- First Choice Energy of Ireland signed a sub distribution agreement with ForceField to distribute Lightsky LED products in Ireland. The company will purchase $12 million in product over the first year. In this three-year deal, "FCEI" will target industrial plants, hotels and other large warehouses.
- Street lights are being installed/tested not only in Costa Rica, but also in Nicaragua, Austria and Germany.
- LED High Bay lights, usually installed in warehouses or facilities with high ceilings, are being tested in a number of facilities throughout Louisiana.
As I mentioned the sales agreements of the company already has, an investor can observe that revenue generation takes place over multiple years. This translates into consistent revenue growth. The numerous opportunities through "project testing" can open the doors for other multi-year revenue sources. Because of the size of these projects, it is not uncommon to test the results and also put together long term financing for the projects. The company's LED division is set for substantial growth in the next five years. If the project testing turns out as expected, this will translate into other multi-year contracts in the millions of dollars.
Besides direct sales, it utilizes other distributors and representatives in different countries. The combination of direct sales, distributorships and a well-organized financial assistance package will help generate residual revenue through global sales.
The broader platform the company is creating will generate the revenue for this division that has been fairly limited at the writing of this article. Jason Williams, CFO for the company that have mentioned earlier in this article, understands the importance of financing large projects like this and is well organized to offer it where needed. Here's what he had to say about the financial portion of these projects:
"We have been highly focused on our cost structure and capital allocation to ensure we have the necessary resources to support our business development activities and our anticipated growth. The signing of an agreement with two "Top 10" U.S. banks for project financing to support the Company's LED lighting initiatives is one key example of this."
Competitors
Cree
Cree is the largest competitive threat, because it is the "big boy" of lighting products. It sells lighting products, LED components and semi conductor products for power. The company has a light-bulb for residential homes that uses 85% less energy, but that is not a concern for ForceField. Where the competitive threat lies is with Cree products that can illuminate things like airports, corporate campuses, auto dealerships and Industrial warehouses.
This last quarter, its profits grew by 89% on higher revenue and margins, but the company also said its second fiscal quarter will have weaker than expected earnings. Revenue was up 24% to $391 million.
The company boasts what it calls its "Cree BetaLED technology." This is a technology it acquired when it bought Ruud Lighting back in 2011. Ruud was one of the first companies to transform the majority of its business into LED lighting. This is where they are competitive with Lightsky technology, because this particular brand is focused on maximizing energy efficiency and performance just like the Lightsky brand.
Revolution Lighting Technologies
Another smaller company knocking on the door of competition for ForceField is Revolution Lighting Technologies (RVLT). Investors recently flocked to the company after revenue jumped in the 3Q of 2013 by a 308% to $5.3 million.
The company is intent on growing and taking advantage of the growing LED industry through a series of acquisitions.
- December 20, 2012-SeeSmart Technologies
- March, 2013-- LIT
- August 22, 2013-Relume Technologies
The third-quarter numbers of $5.3 million in revenue and $3.1 million in net loss are a direct reflection of the acquisitions of the company just made. A year ago the company recorded revenue of $1.3 million with a net profit of $0.3 million.
Its main market is United States, but through SeeSmart, it does have some overseas representation.
Summary of Competition
On a global scale, CREE will be the biggest competitor to ForceField. I believe RVLT is trying to be a bigger force in the United States, but on a global scale I don't think they are as big of a competitive threat as CREE is at this point.
Of all three companies, CREE is the largest and the only one that is running a profit presently. An investment in ForceField is an investment in the growth of the LED industry and a confirmation that you believe the company is a good investment because of the potential growth in the product it is marketing. While Cree's value dropped recently on second quarter re-evaluations, both FNRG and RVLT have seen their values jump on revenue and anticipation of growth in the LED industry. As an investor, I understand this is normal. Whenever you have a large company like CREE lowering expectations, it is not uncommon for small up-and-coming companies in a hot industry like LED lighting to suddenly grow on "potential" that the industry can bring. That is what we are seeing in these two smaller companies.
Proven Leadership
David Natan, present CEO of Forcefield, is a perfect leader to grow the company. He has been CEO of four public companies prior to coming to FNRG (Two NASDAQ & 2 AMEX) and has a track record of working with the present CFO Jason Williams. They worked together at the last public company that was called Pharmanet Development Group, a clinical trials company. When they began to manage the company together, it had $30 million in revenue; over a three-year period, revenue grew to $400 million while the company saw a sevenfold rise in the value of the stock. So David has a good track record of being able to grow a company.
The company has no predatory financing or spiraling debt and the board is taking very modest salaries as they focus on put more money back into the company. This shows that they are very interested in shareholder interests, not coming in taking big salaries without delivering anything. If an investor is looking for a long term investment for growth and value, I believe ForceField is one company worth considering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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