Wednesday, 30 March 2011

My Sun Sets for PVCS

PVCS announced its results for the year to 31 December 2010 on 24 March and what a comprehensive read they are.

I first bought into the Company in April 2009 (way before this blog started) and reviewed it on this blog in December 2010


Volumes of wafers have increased, more than offsetting the continued price fall = revenue + 6%

Gross margins fell from 36% to 29% due to continuing price falls

Operating margins fell from 17% to 13% despite cost reduction measures

EBITDA of £36m, down 8% (v FY09)

Operating cash was £16m, down 56% (v FY09) due to increased stock levels

EBIT of £29m, down 21% (v FY09)

PAT of £20m, down 21% (v FY09)

Free Cash Flow - outflow of £5m v inflow of £4m in FY09, due to investment in capex (without grants)

FY10 EPS of 5.0p, down 21% (v FY09)

FY10 DPS of 2.6p, down 25% (v FY09) and equates to a yield of 4.6%

Chinese and Taiwanese customers accounted for 42% of revenue (up from 12% in 2009)

75% of revenues are now generated in Asia and 25% in Europe & USA

No immediate impact on Japanese customers, suppliers or operations from earthquake and tsunami. A strong Yen has a negative impact on PVCS's results, although the back-lash against nuclear is likely to be positive for solar in the long-term

A strong start to 2011 due to strong growth in global installations - with H1 volumes expected to be 45+% up on H1 2010

Valuation Metrics

NAV of £245m, including Net cash of £48m on balance sheet

Market cap of £238m based on a share price of 57.2p. This represents a PER of 11.4x

EV of £190m. EV/PAT ratio of 9.5x and EV/EBITDA of 5.3x

ROE of 13% in FY10


Whilst PVCS is not particular expensive in terms of valuation and has a strong balance sheet, what concerns me most is the future. As the solar market evolves and the Chinese in particular pick up the pace, PVCS has an increasingly 'commodity' feel to it, with falling prices, squeezed margins and falling shareholder returns looming.

Ok, it is investing in its facilities, the global market is growing and it appears to be a well-run and financed-company, but do I want to invest in a company where they will have to run to stand-still trying to sell ever-increasing volumes in order to combat ever-falling prices? No.

I am struggling to see how I am going to generate my desired return of 15% IRR and think there are more suitable candidates out there. I am selling my holding in PVCS.


  1. Good call! It trades as a net net now.

  2. Another Smart post from you Admin :)