Despite delivering significant growth as an industry, the solar sector has not been very favorable to investors. For instance, Invesco’s Solar ETF (TAN) has performed poorly compared to the S&P 500 index (SPY) and the popular Invesco technology trust ETF (QQQ). However, investors focusing on companies specializing in solar inverters like Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) have seen strong returns. This suggests that investors seeking exposure to solar sector growth should concentrate on this area and steer clear of commoditized solar panel manufacturers.
We previously compared SMA Solar Technology (OTCPK:SMTGF) to Enphase Energy and are now updating our coverage after the company’s fiscal year 2023 earnings results and 2024 guidance. There is ongoing debate on which inverters are superior, with the answer typically being “it depends.” While SMA Solar inverters are generally reliable and cost-effective compared to micro-inverter specialists, micro-inverters offer advantages in situations like partial shading or panel malfunctions, as well as enhanced monitoring capabilities. Nonetheless, there is still a demand for SMA Solar inverters, particularly in large scale installations, which is their largest and fastest-growing segment.
For fiscal year 2023, SMA Solar reported robust financial results, with group sales increasing by 79% to €1,904 million and the EBITDA margin expanding to 16%. Net income quadrupled to €225.7 million, with 20.5 GW of inverters sold in 2023, significantly higher than the 12.2 GW sold in 2022. The company ended the year with a substantial net cash position of €283.3 million, providing resources for future growth. While gross margin improved to 29.4%, Enphase Energy still maintains superior gross profit margins.
The company’s backlog remains healthy, ending the year with a total backlog of €1,705.0 million. The Large Scale & Project Solutions segment backlog increased to €914 million, indicating strong competitiveness in that area. SMA Solar is now benefiting from significant growth in large scale projects, expecting revenue growth to outperform by a considerable margin in 2024.
Guidance for fiscal year 2024 anticipates sales between €1,950 million and €2,220 million, with EBITDA between €220 million and €290 million. Sales growth is expected to be primarily driven by the Large Scale & Project Solutions segment, while other segments may face challenges due to high inventory levels. Despite higher expected sales, the company forecasts a slight decrease in EBITDA for FY24.
Despite the positive outlook, the company trades at low valuation multiples, possibly due to its European base. Trading at a fraction of its peers’ valuation multiples, SMA Solar is seen as significantly undervalued and an attractive option in the solar energy sector. Risks include uncertainties regarding future government support for renewable energy and potential competition intensification.
In conclusion, SMA Solar presents an interesting opportunity for investors looking to capitalize on the anticipated growth in solar installations. With strong performance in the large scale projects segment and attractive valuation multiples, the company appears undervalued compared to its peers.
