Among Carmanah Technologies’ solar-powered outdoor LED lighting and signalling systems is this marine navigation aid.Carmanah Technologies
Investors who placed their bets on the comeback of struggling solar lighting firm Carmanah Technologies Corp. have been richly rewarded over the past year, and analysts believe there are more gains ahead.
Shares of the Victoria-based company have more than doubled over the past 12 months as the company increases revenues with its solar-powered outdoor LED lighting and signalling systems for the marine, aviation and traffic industries.
Analysts say the small-cap company, which underwent an activist investor-led restructuring with new management in 2013, is cutting costs and expanding revenues in both existing operations and through acquisitions, including its recent purchase of Finland-based Sabik Group of Companies.
"It's a turnaround story that has so far proven to be successful," said Salman Partners analyst Mike Plaster, who has a "buy" and $7.85 target on the stock. That is about 48 per cent above where it's now trading around $5.32.
"It's a good growth story that perhaps isn't fully known and recognized compared to many other stocks. It has flown below the radar screen, which also makes it interesting."
Mr. Plaster said the company is growing the business across all of its divisions, with a focus on boosting margins through cost reductions and increasing revenues.
"They've built a good platform that's low-cost, scalable and profitable," Mr. Plaster said.
All three analysts that cover the stock have a "buy" recommendation with a consensus price target of $8.13, according to S&P Capital IQ.
GMP Securities analyst Deepak Kaushal has an $8.25 target on the stock – a "premium valuation" he said in a recent note is due to an "expectation of continued high growth and margins fuelled by a steady pace of tuck-in acquisitions."
Mr. Kaushal says the price doesn't include any larger deal that could provide a bigger boost to the stock price.
In July, the company closed its acquisition of Sabik, which makes marine signals and lighting, for €21.5-million (about $32-million).
Carmanah chief executive John Simmons said the company's main focus is organic growth. "Acquisitions are fun and sexy, but it's organic growth that's the first driver," he said.
He took the top job in August, 2013, after restructuring the business to focus on the three segments; signals, illumination and power. The signals segment, which includes beacons for roads and airport runways, accounts for 57 per cent of revenues, while 26 per cent is from power segment, such as solar panels, and the other 17 per cent from the illumination division, including highway and street lighting.
Mr. Simmons said the company also has room for growth in new markets. Today, following the Sabik acquisition, about 56 per cent of the company's revenues are from North America, mostly the United States, 39 per cent Europe and the other 5 per cent in Asia and South America. Some of its major customers include governments, coast guards and air forces in the U.S., Canada and Brazil as well as power authorities such as Toronto Hydro.
While acquisitions may not be a top priority, the company is looking for deals and has "four or five discussions ongoing" with potential targets, Mr. Simmons said.
"We are looking for companies that will broaden our product line."
Bruce Campbell, president and portfolio manager at StoneCastle Investment Management, has been buying Carmanah stock in recent months, seeing it as a turnaround story "that's not done."
"We will probably add to our position down the road," said Mr. Campbell, who sees Carmanah as a technology and monitoring company "with a solar tag" that makes it unique in the market.
"The valuation is certainly reasonable, if not cheap," he said, trading around eight times forward earnings.