Thursday, October 17, 2013

SCTY research

Another better never late story, first comments here

This is another one of those companies that is a little complicated for me to wrap my mind around but I like anyway, kind of like Facebook.  My analysis of TSLA allowed me to figure out some forward price targets based upon historical car data and known prices.  When thinking about NEW businesses using new business models, that comparison is not as easy.  I have followed solar city on the stock charts nearly since the IPO.  I am a solar producer and will add more panels in a few years.

I want to write about this using the Kobrick BASM model to guide me, kind of as a checklist.

Business Model:  SCTY with the Rive boys and Elon wanted to get into the solar business.  It sounds like on a road trip (I am thinking in the style of Harold and Kumar) they thought about this.  I think they went to solar trade shows, analyzed the participants, came up with a game plan.  What they do is raise funds from investment pools or companies like Google, use that money to install a free solar system on homes in like 14 states, then sell electricity at a discounted rate to the occupant.  They also install large systems for companies like Walmart.  My guess or assumption is they pay investors a percent on the money, then pocket the difference between that and the rate they bill for.  In some states, this rate is quite high (CA charges peak rates more than double my rate at home).

Assumptions:  Clean Energy is good.  People like cheaper energy.

Strategy:  Some of this is wrapped up with the biz model.  They are growing into new markets, partnering with large builders and suppliers, do large installations, have value added services to provide after a virtual energy audit.

Management:  Elon gives them only a few hours a month per a report I saw.  Rive brothers are his cousins.  One of them is serious athlete in odd sport.  Not as proven in business I think, but steering this new young ship well.

Other:  I have a tough time knowing exactly what the full potential of this company is.  They offer most home owners a compelling product.  From a homeowners perspective, the initial outlay for solar is very expensive, I took out a loan.  Many might not be able to do this.  So this company handles all of that, all a customer has to do is buy cheaper electric from them.  This makes it easy to decide.  I think they are only in high energy cost states so profits ought to be good.  I think they make the spread between price they install for along with servicing costs paid to financiers and the price they get to charge for the electric.  Not yet profitable but they ought to be later this year.  They are working on some kind of debt ratings deal, my guess is packaging up old debt in a manner that the risk can be professionally quantified such that many other investment pools can own SCTY debt.  They have 3 billion in funds available to build out systems at present.  There are likely some tax credits available to financiers and SCTY after buildout.  They seem to have an integrated outfit with acquisitions helping.  Solar can play a big part of energy independence.  They are likely helping with ecar adapatation by installations of charge locations.

Risk:  End of subsidies, CNG, a chance of better performing assets (from the financiers perspective), cheap energy.  Read S-1 for more discussion.  I did.

Chart thoughts:  What a freaking great return off the IPO price!  Good job whoever did that.  IPO risk gone, early sellers can be out.  Here is what I noted recently.  I am sitting around at my computer a few days ago (10/8) scared and emotional in a way I should have grown out of.  I was talking specifics with my spouse, sometimes not a good idea.  I sell out of FB with half the profit I'd had, and less profit that I'd have if I had held.  So I sell out, the emotional pressure leaves my body and I can watch a little more peacefully.  GLARING at me is the fact that SCTY had not gone down like the rest of the world.  In fact, it was making new recent highs  on decent volume.  I swear to GOD I saw this.  Perhaps in the future I will buy it!  So what happens is it soon zooms like 16-17% based upon some news event, just the trigger to make this thing explode.  How the hell to handle this one at this juncture?  Well, I put my big boy pants on, buy LEAPS and stock.  By end of day both positions are profitable.  Price hangs out a couple of days, then busts a move again, so I add.

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I recall someone saying that the earliest market movers in each cycle can go on to be the big winners!

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