NEW YORK CITY --
SolarCity Corp., the solar power provider led by billionaire Elon
Musk, is betting prospects for clean energy and Musk's name will help it
garner a valuation 19 times the price of peers in an initial public
offering.
The IPO, scheduled for today, would value the San Mateo,
California-based company at about $1 billion, or about 8 times sales in
the 12 months through September. That compares with an average
price-to-sales multiple of about 0.4 for publicly traded companies such
as Real Goods Solar Inc. and First Solar Inc. SolarCity is pushing ahead
with its offering after completing the most equipment installations in
California, the U.S.’s biggest solar-power market.
While Musk may be aiming to replicate the performance
of his Tesla Motors Co., which has doubled since its 2010 IPO, SolarCity
is contending with a market that has pummeled public solar stocks and a
pending U.S. government inquiry into its accounting practices that may
raise costs. Still, while the valuation SolarCity seeks may be
“excessive,” the company has established itself in a business that’s
poised to grow, said Debra Fiakas, managing member of New York-based
Crystal Equity Research LLC.
“SolarCity competes in the integration and
installation market with a lot of mom-and-pops, and that makes them
incredibly powerful, because they don’t face any large competitors,”
Fiakas said in a phone interview. “They’re a new-age utility of sorts.
They represent the distributed utility that we’ve started to talk
about.”
Lower Rates
SolarCity and existing owners are seeking $151
million, offering 10.1 million shares, equivalent to a 14 percent stake,
for $13 to $15 each, according to regulatory filings. Musk, the biggest
shareholder, doesn’t plan to sell shares, and filed last week to buy
$15 million of the company’s stock in the IPO.
SolarCity is one of a handful of companies that lease
solar panels to customers, install them on their property, and charge
them below-market rates for the electricity they generate. Jonathan
Bass, a spokesman for SolarCity, didn’t respond to a phone call and
e-mail seeking comment.
In California, the largest U.S. market, SolarCity has
completed more installations than any other developer, according to the
California Solar Initiative, a state-run program that tracks
construction data. SolarCity says it has provided systems for more than
45,000 buildings in 14 states. A competing top developer, Sunrun Inc.,
says it has more than 20,000 customers 10 states.
Increasing Demand
U.S. spending on energy-efficiency services will
increase more than four-fold between 2008 and 2020, reaching as much as
$80 billion, SolarCity said in regulatory filings, citing Lawrence
Berkeley National Laboratory.
Increasing demand for renewable energy means
SolarCity, which booked a $95 million net loss in the year through
September, has the potential to gain value, according to Kevin Landis,
president of Firsthand Capital Management Inc. in San Jose, California,
which holds shares of the company’s stock.
“If you look just at revenue, they may seem a little
expensive,” Landis said in a phone interview. “I care more about their
bookings and trends in bookings than their revenue recognition, and that
shows them to be a good value. It’s a story I believe in.”
Even as demand for alternative energy rises,
solar-company stocks have been hurt by oversupply of equipment and raw
materials. That has depressed the World Solar Energy Index of company
shares as much as 65 percent this year, extending the drop from its 2007
peak to 96 percent.
Tax Credits
Real Goods Solar, the Louisville, Colorado-based
company that SolarCity names as a competitor, has a market value of
about $18.5 million, or less than 0.2 times trailing 12-month sales,
data compiled by Bloomberg show. First Solar, a solar- panel maker based
in Tempe, Arizona, has a market value of about $2.6 billion, about 0.9
times sales in the period.
While SolarCity currently benefits from tax credits
totaling as much as 30 percent of the cost of these systems, the
company’s accounting method for valuing the equipment has recently come
under scrutiny.
In July, SolarCity and competitors received subpoenas
from the U.S. Treasury Department for documents related to grants the
company received for building solar systems, filings show. SolarCity
said collecting the documents could take six months to complete and that
a decision from the department’s inspector general may take as long as a
year after that.
“SolarCity is facing some pretty big risks right now,”
said Mark Bachman, a renewable energy analyst at Avian Securities in
Boston. “The timing of this IPO is a little strange given their legal
issues and the fact that they’re still losing money.”
Musk Magic
Musk, a co-founder of PayPal Inc., may be able to extract more from investors given the success of unprofitable electric- car maker
Tesla, which he took public in 2010 at a premium. Tesla, another
company that he co-founded in a nascent industry, has more than doubled
in value since then, bolstering his estimated $2.6. billion fortune.
SolarCity so far has raised $1.57 billion in financing
from banks and companies such as Credit Suisse Group AG, Google Inc.,
PG&E Corp. and U.S. Bancorp, according to its filing.
The company, co-founded by Musk’s cousins Lyndon and
Peter Rive, is also backed by venture-capital firm Draper Fisher
Jurvetson, which will hold a 21 percent stake after the IPO. Lyndon Rive
is the chief executive officer, and his brother Peter is the chief
operations officer and chief technology officer, filings show.
Goldman Sachs Group Inc., Credit Suisse Group AG and
Bank of America Corp. are leading SolarCity’s IPO. The stock will be
listed on the Nasdaq Stock Market under the symbol SCTY.
Copyright 2012 Bloomberg
http://www.renewableenergyworld.com/rea/news/article/2012/12/elon-musk-backed-solarcity-seeks-ipo-multiple-of-19-times-peers
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