PHOTON International The Photovoltaic Magazine

»No one reckoned with us«

The German solar firm SES 21 AG plans to go public in July on the technical-orientated stock exchange Neuer Markt. Depite

	© SES 21
Looking for cash: The SES 21 board members Wolfgang Dollinger, Willy v. Becker and Ingo Martin will list their company at the stock market.

There hasn't been much publicity on new solar-industry IPOs since the German cell maker Sunways AG began trading on Germany's Nasdaq equivalent, the technology-oriented Neuer Markt, last February. Several German companies, such as the solar cell manufacturer Ersol, the module manufacturer Solar-Fabrik, as well as England's Intersolar and the Norwegian wafer manufacturer Scanwafer, may be poised to launch their IPOs soon. But SES 21, a fairly unknown entity compared with these other firms, is first this year. »We are not the biggest on the market,« explains Ingo Martin, an SES 21 board member, »and I am sure that many had not expected us to make the first move.« Martin believes his company has picked the right moment to go public: »Although the market is difficult, the demand for environmental stocks is still relatively high.«

But what does his company really have to offer? PV has accounted for 98 percent of wholesaler SES 21's turnover; in the future, the company intends to offer solar-thermal systems as well. SES 21's main market has been primarily in Germany, especially Bavaria, which accounted for about 70 percent of turnover. Bavaria has been Germany's most attractive state in terms of solar business, as almost every second PV system is installed there.

SES 21 does not have its own module factory - which, in the short-term, probably will be more of an advantage than a disadvantage, since an increase in production capacity among all manufacturers has transformed modules from a scarce good to a surplus product, and prices have been dropping significantly as a result. SES 21 buys its modules from several manufacturers, including Shell Solar and Solon, but their primary source is the Japanese company Sharp. These modules are generally sold to integrators, who can also be trained by SES 21 staff. Martin says about 200 customers buy regularly from SES 21, though he does not see the need to ask for exclusive contracts. »95 percent of companies refuse to enter into any form of franchise system,« he explains. »They want to remain independent. But when we take good care of them, they remain very, very loyal.«

	© PHOTON International

SES 21's main shareholders are the founders and board members, Wolfgang Dollinger and Martin. Willy von Becker, former CFO of the logistics company IFCO Systems, later joined the board of directors. SES 21 has a German subsidiary (Solarzentrum Oberland GmbH, 100 percent) and recently opened its first subsidiary abroad (SES 21 Solar Service GmbH, Bregenz, Austria, 75 percent). In addition, the board formed a venture with Ercosol Invest GmbH that will be able to take over the management of investment funds for PV power plants.

SES 21 hired the consultants Murphy & Spitz Research of Bonn to analyze last year's financial figures as well as the targets for 2002 -- and they seem fairly promising. Turnover quadrupled in 2001, and it is not unrealistic that it will double again in 2002. Furthermore, the company's profits are expected to increase linearly in 2003 and 2004 to about €11 million ($9.3 million). These estimates seem rather conservative; real profits may be even higher. One unknown factor is the resolution of guarantee claims, which could affect SES 21 in the next 10 to 25 years, as its minimum power guarantee for delivered modules is 15 years longer than the typical 10-year guarantee of Japanese manufacturers like Sharp. Nevertheless, the company has already set aside reserves for outstanding losses that presumably should suffice.

What are SES 21 shares worth?

It goes without saying: All solar stocks are not the same. However, unlike all of the other publicly traded German solar companies (except SolarWorld), SES 21 has the advantage that its board of directors pulled the company out of the red soon enough to prove that it could be profitable.

Although SES 21 is a less risky venture than a cell or thin-film manufacturer, the fact that SES 21 does not have its own production factory, patents, or desire to create franchises or licenses makes the company less attractive than other solar stocks, which have such elements and therefore can justify a higher price-to-earning ratio (P/E ratio). Hence it is unlikely that SES 21's stock will be valued higher than that of a company like SolarWorld, which currently is at about €15 ($14) and has a P/E ratio of less than 10.

If one were to determine the issue price by multiplying the estimated annual profit over the next two years (€0.55 and €0.84 ($0.51 and $0.78) per share) by 10, the share price would range from €5.50 to €8.40 ($5.14 to $7.85) . If one determined the company's value by taking into consideration next year's projected annual turnover of €32.3 million ($30 million), then one would get a price of €9.43 ($8.81) per share. In their study, Murphy & Spitz recommend a price of €9.50 ($8.90). However, SES 21 has decided to stay on the safe side of the road; on June 24, it announced that shares will be offered for between €6 and €6.50 ($5.60 and $6.10). If the issuing house, Gebhard and Schuster, sets the issue price to the maximum of that range at the end of the bookbuilding process on July 8, the 900,000 new shares, which will account for a free float of 26 percent after the IPO, would result in issuing revenues of €5.85 million ($5.47 million).