AIR - a sleeper?

[KW]

Exposure to the solar and REC trading schemes.

Growth market:
http://www.businessspectator.com.au/bs.nsf/Article/Our-new-energy-gold-rush-pd20100602-5ZS5L?OpenDocument&src=sph

Solar sales account for 65% of revenue - positive provided increased sales offset lower margins. Drop in currency value will also have an impact, but in turn this may stop the market discounting.

Interested in other's thoughts?

Disc. have a holding thanks to AIR being a spinoff from TWD

[mark100]

I hold a few. They seem well run by a conservative board from what I've heard through Dixon Homes but their profile is very low with investors since they were spun out from yet another low profile company. Very cheap based on their FY10 forecast a PE of around 5.8x I think.

The only thing stopping me from buying a larger stake is the reliance on government policy

[KW]

A strong result from AIR today. At a price of $1.15 this company is still on a low P/E of 6.84

[mark100]

Yes good result. Cash flow is lagging due to the high growth it seems and reading between the lines a capital raising might be on the horizon. Hopefully any raising would be offered to all shareholders

[COLIN]

KW & Mark: Thanks to you chaps for bringing this little baby to our attention. Liquidity not great, of course, with such a small outfit, but I managed to accumulate some back then. Always encouraging to see a result well in excess of prospectus forecast.

[mark100]

A Labor/Green govt is probably a benefit to AIR (one of the rare benefits I can see). I can't see a government that relies on the Greens for its majority taking away any of the rebates for solar energy

[macduffy]

A Labor/Green govt is probably a benefit to AIR (one of the rare benefits I can see). I can't see a government that relies on the Greens for its majority taking away any of the rebates for solar energy

Wouldn't think so.

But on the other hand the "new" govt doesn't seem to be doing anything for the Dyesol (DYE) SP.

[mark100]

The AIR annual report seems to indicate another year of growth again.

Even the bathroom and kitchen division seems to be talking of increasing revenues (although 'profit margins will remain under pressure'). Solar seems to be growing and they talk of increasing pressure on their Brisbane warehouse due to increasing sales volumes.

Trading at <6x FY10 NPAT with growth expected in FY11 along with the commencement of a 50% dividend payout policy I think AIR can be re-rated upwards from here. I continue to hold

[KW]

Rocking along :-)

[COLIN]

The AIR annual report seems to indicate another year of growth again.

Even the bathroom and kitchen division seems to be talking of increasing revenues (although 'profit margins will remain under pressure'). Solar seems to be growing and they talk of increasing pressure on their Brisbane warehouse due to increasing sales volumes.

Trading at <6x FY10 NPAT with growth expected in FY11 along with the commencement of a 50% dividend payout policy I think AIR can be re-rated upwards from here. I continue to hold

A nice little performer, providing some diversity to my portfolio which has become heavily weighted towards the mining sector - for very good reasons, of course.

There are so few sellers of AIR to meet the demand, which provides nice upwards pressure to the price.

[modandm]

this looks like a nice little story here i am interested - a fellow broker also mentioned it to me as one to watch.

Im a fan of low PE high growth company's - aren't we all. But AIR should be trading on a low PE to compensate for the risk of such a microcap.

Can anyone more familiar with the stock give estimates of what sort of growth can we expect going forward? With the capacity constrains metioned in the annual report more than 30% growth seems optimistic. Once thes hurdles are cleared?

Does anyone have any statistics on the market for solar energy in australia - ie. who are the big players market share breakdown etc? Also anyone comment on the competitiveness of the sunpower and other panels sold by AIR vs competitors?

[mark100]

I think the biggest risk over the medium to longer term with this stock is a change in govt policy at some stage. I've remember reading somewhere a few weeks back that it is already costing generators/government a lot of money from the high rate /kWh that is paid to households for power they have sold into the grid. I think it's something like 55c / kWH vs around 19c/kWh for what you pay for grid power consumed. If these sort of generous policies get changed less households may want solar. Plus it's govt policy of RECs etc that make it affordable to have them installed in the first place. For this reason my holding of AIR is likely to remain fairly modest. In the short term it appears to be a growth story

[percy]

I think the biggest risk over the medium to longer term with this stock is a change in govt policy at some stage. I've remember reading somewhere a few weeks back that it is already costing generators/government a lot of money from the high rate /kWh that is paid to households for power they have sold into the grid. I think it's something like 55c / kWH vs around 19c/kWh for what you pay for grid power consumed. If these sort of generous policies get changed less households may want solar. Plus it's govt policy of RECs etc that make it affordable to have them installed in the first place. For this reason my holding of AIR is likely to remain fairly modest. In the short term it appears to be a growth story

I can not see the big generator's putting up with the situation for long.Expect they will put pressure on the govt.Just to help you out so as your shareholding is more modest,I am on the bid at $1.24. Trust that is not you on the offer at $1.75.My good intentions do not run that high.

[KW]

Pricing may change, but climate change and renewable energy is the way of the future - no getting around that. And unless CFU kicks a few goals, solar energy is really the only choice at the moment. But govt policy will definately determine its short term vs long term performance.
Another risk is that the market is very competitive, with price competition for the panels squeezing margins.

Personally, I'm filing this one in my "whats the next big market bubble going to be and am I board" category - as I'm betting its everything to do with renewable energy :-)

[COLIN]

The make-up of this new Govt ensures that clean energy will be accorded an increasingly high priority. The Green fringe will have far more power than their fair share, but that is the nature of politics.

Only one seller of AIR at the moment - at 175!

[KW]

That order was originally placed at $2 then changed to $1.75 :-)
And no, its not me !

[mark100]

I can not see the big generator's putting up with the situation for long.Expect they will put pressure on the govt.Just to help you out so as your shareholding is more modest,I am on the bid at $1.24. Trust that is not you on the offer at $1.75.My good intentions do not run that high.

No not me on the offer. My sell price will be guided by any forecast they make at the AGM

[percy]

No not me on the offer. My sell price will be guided by any forecast they make at the AGM

You will have to forgive me,as sometimes my sense of humor gets the better of me.

[mark100]

I think the biggest risk over the medium to longer term with this stock is a change in govt policy at some stage. I've remember reading somewhere a few weeks back that it is already costing generators/government a lot of money from the high rate /kWh that is paid to households for power they have sold into the grid. I think it's something like 55c / kWH vs around 19c/kWh for what you pay for grid power consumed. If these sort of generous policies get changed less households may want solar. Plus it's govt policy of RECs etc that make it affordable to have them installed in the first place. For this reason my holding of AIR is likely to remain fairly modest. In the short term it appears to be a growth story

Home solar costs 25 times more than ETS to cut gas
Annabel Hepworth
The Australian October 06, 2010
SCHEMES that pay households to produce power using rooftop solar panels are costing about 25 times as much to cut greenhouse gases as a nationwide ETS.
The warning comes from electricity generators who say the schemes will lead to soaring energy bills.

In a confidential submission obtained by The Australian, the National Generators Forum has told the NSW government that its scheme is costing between $520 and $640 to reduce each tonne of carbon dioxide - compared with the $23 per tonne proposed in the emissions trading scheme shelved by Kevin Rudd.

The submission states that although the scheme will create green jobs, each job created will cost between $130,000 and $700,000. "The cost of the scheme is borne by all energy customers but hidden," the submission states. "There is a widespread community view that solar generation is good for the environment. However, there is little public understanding of the cost of delivering those perceived benefits."

NSW supplier EnergyAustralia recently applied to the Australian Energy Regulator to pass through $75.9 million in extra costs between 2009 and 2014 associated with the scheme. The developments will escalate the pressure on Julia Gillard to put a price on carbon.

In the absence of a carbon price, state governments in Victoria, Queensland, South Australia and Western Australia have introduced a raft of greenhouse gas reduction policies including schemes under which consumers with solar energy panels are paid to export energy to the grid.

But the solar schemes lead to higher prices because households with solar panels or wind turbines are paid vastly more than power stations on the electricity grid; in NSW for instance, people are paid $600 per megawatt hour for producing power using solar panels, which compares with prices on the wholesale energy market of about $52 per megawatt hour.

Last week, the Greens reintroduced legislation to the Senate that would create a national "feed-in tariff" scheme, under which consumers would be paid to generate power using a wide range of renewable technologies.

The Greens' plan is akin to the NSW Solar Bonus scheme - considered the most generous in Australia and currently being reviewed - in that it would pay consumers the tariff on everything they generated even if they used that power themselves.

The South Australian and Victorian schemes pay consumers only for the energy they export, but the Greens say this is a "particularly weak" approach.

Energy Supply Association of Australia chief executive Brad Page said that under the Greens' proposal consumers would "pay massively more for electricity" than they needed to for at least the next two decades. He added that the proposal was a "regressive form of taxation"; grants were a better way to commercialise nascent technologies.

Another industry source said the Greens' move had led to "primal screams" within the $7 billion-a-year power generation sector over a policy that was "economically ignorant" and would mean that, in Sydney, "Bankstown electricity users pay for Point Piper users".

The federal government's Renewable Energy Target of 20 per cent renewable energy by 2020 issues multiple Renewable Energy Certificates to owners of small-scale solar, wind and hydro-electric systems, which they generally transfer back to their energy supplier in return for a cash payment or cheaper bill. But this has caused the National Generators Forum to question the need for further state-based subsidies for such technologies. The carbon price under the federal scheme, which is not a feed-in tariff, is about $38.50 a tonne.

Mr Page said the schemes represented a "rapidly growing impost on the economy" as the tariffs were not budget-funded but were "smeared across the community".

Energy Users Association of Australia executive director Roman Domanski described the schemes as "middle-class welfare" and said they lacked the compensation big industrial users expected under emissions trading.

The Australian Council of Social Service's senior policy officer of energy and climate change, Tony Westmore, feared "a serious increase" in power bills and said "those people who have the cash to be able to put the panels on their roof will be subsidised by people who can't afford their current bills".

Mr Westmore said the NSW model - known as a "gross" feed-in tariff because it pays people for everything their panel generates - was "likely to prove grossly inequitable".

Other states tended to use "net" schemes that paid people for power that was superfluous to their own needs and went into the grid; these were "possibly inequitable".

"On the one hand, we are supportive of the deployment of renewable energy and the jobs it brings, but it really ought to be done strategically," Mr Westmore said.

National Electrical and Communications Association chief executive James Tinslay was concerned about unlicensed people installing panels because some state electrical regulators did not consider this electrical work.

"Potentially, I think we are going to find a lot of problems with these," Mr Tinslay said. "There are a huge amount of these things going in and there's an issue that's going to come back to bite us in the future about poor-quality installs."

In NSW, the government said it would review the scheme when it reached 500 megawatts capacity. This happened just over six months into the scheme, triggering a review.

The office of NSW Energy Minister Paul Lynch said submissions were being considered.

Schemes in other states are set to last between 10 and 20 years.

The NGF's figure of $23 per tonne was based on Treasury modelling in the federal government's ETS white paper that priced carbon at that level for 2010, with a cap of $40. The forecasts have varied as the government later revised its plans to secure opposition support for emissions trading.

[KW]

Ignore the lobbyists. Those with vested interests in big business and energy utilities will always argue against retail measures like solar and ceramic fuel cells. This industry is based entirely on govt policy - but with a labour/green party in power the odds are in the little persons favour. There is also a lot of work to be done in regards to sorting out pricing for those with solar panels - in VIC customers are being charged double what those without solar panels are being charged. Its a cowboy industry at the moment - so all you can do is watch the AIR trend like a hawk.

[mark100]

Unfortunately the lobbyists (ie minority) in Australia can at times determine govt policy! I don't think it's something that will hurt AIR in the short-term, more a potential medium-longer term issue to contend with

[KW]

I meant just ignore the noise. If the lobbyists get their way, then sell AIR and buy electricity retailers :-)

[COLIN]

Yes, lets make hay while the sun shines, as it were!
Lack of sellers means that anyone determined to purchase a few AIR just has to push up the bidding price.

[mark100]

As at midnight last night NSW apparently cut the gross rate it pays for solar power generated from 60c/kWh to 20c/kWh due to a cost blow-out with the scheme. From glancing at a few figures I think the NSW scheme was the most generous in the first place. I am not holding AIR at present so this might be taken as a downramp but I thought it was worth mentioning. AIR is still on my watchlist.

[KW]

After some thought its probably not going to have too big an impact long term - the panels are now so cheap its worth installing them just to supply your own power rather than using the feed in tariff to pay for them. And with the strong dollar, the panels will be even cheaper this year. And electricity prices are going up.

NSW is one state, although I would expect Victoria to jump on the bandwagon to cut theirs as well. However, its possible the Federal Govt will resurrect the National feed in tariff scheme in order to stop the states from canning all the renewable energy projects.

I'm not sure about how NSW worked, but I know Victoria charges you more in power costs if you are feeding in - so what you make on the tariff you lose on consumption. The business case for them really should be on saving on your own consumption costs, not the resale of electricity. Far more sustainable business case than relying on govt subsidies - which are then negated anyway by the electricity companies.

Interesting times :-)

[mark100]

In a month or so I will be moving into a house (in QLD) that has Astivita supplied solar panels. I am interested to see how all the costs and benefits work out first hand

[KW]

While Liz noticed a movement in MBD, AIR is also on the up. Maybe kitchen and bathroom appliances are the next big thing :-)

[percy]

Half year result due.SP has weakened off since I brought.[no surprises there.!]

[COLIN]

Half year result due.SP has weakened off since I brought.[no surprises there.!]

I pulled out at the end of October, Percy, when it seemed to be weakening. I should have advised this to you chaps. Sorry. With the NSW Govt pulling the plug, so to speak, the "easy money" days are probably gone.

[KW]

Long term solar is a good investment - reduction in tariffs and hardware grants are offset by the lower cost of the panels and installation. Electricity prices are going through the roof over here, so I dont expect any lessening of demand for them. If AIR had a high P/E to justify I would be worried, but its still very cheap. And the company said that they are gaining market share by exploiting economies of scale. I'm still holding as this is a long term investment for me, not a trade.

Note: The NSW govt didnt "pull the plug" as you put it. They dropped the sell in tariff. Since the idea of installing solar is to save money (by not having to buy electricity) the ability to sell into the grid shouldnt factor that much into the equation (ie. it was a nice to have, but not a must have). As I mentioned previously, in Victoria you were always better off not selling into the grid at all, as otherwise your buy price also increased to the spot price.

The current weakness is due to the reduction in the Fed govt grant for the upfront hardware cost - however, this will be offset by cheaper prices. The thing to watch with this is the Aus $ - if it sinks, the panels will increase in price.

Also remember their other business is bathroom and kitchen fittings - a lot of flood damaged houses in QLD at the moment needing new bathrooms and kitchens.

[percy]

Colin and KW.
Thank you for your replies.I looked at SOO before I brought AIR and thought AIR better."I'd put my money on the sun and solar energy.What a source of power!" so said Thomas Edision.
I did think air had acheived huge sales on low stock holding,and am expecting stock to increase.I look at air as a long term holding[can not see the sun stopping] so will see what the half year report is like before adding to my holding.I note KW your comments on floods,helping bathrooms and kitchens.Could it help solar as well?

[KW]

I wouldnt have thought the solar panels would be damaged by water Percy. Although, all those houses that lost power when it was turned off may be thinking it would be nice to have a more reliable alternative electricity supply.

[percy]

I was thinking if you received a big insurance payout,while you are repairing your house,you may cut back a bit in one area,and say I am sick of those power bills we will spend some of the money,and put in solar panels.Or while we have the builders here,instead of upgrading the car we will get them to put in solar.In CH ch a lot of people have had big earthquake payouts,and are spending the money in other areas of the house. I hope not too many got so badly flooded they have to replace their solar panels..!!!!!

[mark100]

I wouldnt have thought the solar panels would be damaged by water Percy. Although, all those houses that lost power when it was turned off may be thinking it would be nice to have a more reliable alternative electricity supply.

From my experience with Astivata solar panels, when Energex cut the power off to the street we still had no power. Even though it was sunny at the time! I think it is set up that way to protect your electrical appliances from suffering the effects of a 'brown-out' ie not enough power to run them properly

[KW]

Thats interesting. Wonder if you could set it up to just run lights and hot water? Seems a bit pointless having an alternative means of power you cant use. Although, maybe its a safety thing (ie. so you dont get electricuted by your solar power in a flood). Should ask your power company what happens in a normal power outage - would you still get power then?

[POSSUM THE CAT]

Mark 100 since when do solar panels create alternating current So I expect Energex does the conversion to AC

[mark100]

Mark 100 since when do solar panels create alternating current So I expect Energex does the conversion to AC

There is an inverter in the garage to do the DC to AC conversion. If you want to do electrical work on the house you have to switch off 2 main switches at the meter box, the mains supply and solar supply. But a few weeks ago when our street had a brief power outage during the day, I had no power despite thinking the solar would have me covered.

And yes my solar is working because when the Energex man originally hooked it up, I was running a 1.5hp inverter style air conditioner, 2 ceiling fans, fridge, 2 laptops and a light and he said I was still exporting a surplus of power to the grid.

I will have to look into it a bit more

[KW]

The NSW Govt is looking at removing the ability to sell in to the grid (currently at 20c) instead moving to net metering. This may be causing some of the uncertainty with the share price. If NSW does it, the other states will probably also follow in an effort to cut budgets. However, its not actually bad news. Following is an excerpt from the Climate Spectator http://www.climatespectator.com.au/commentary/sunstruck-rooftop-solar. If this is accurate, then the share price weakness presents a good buying opportunity. In France and Germany cuts in tariffs did nothing to stop demand for solar. Rising electricity prices coupled with a Federal Govt subsidy for installation costs will continue to drive demand.

"The government has yet to formally announce what it will do once the scheme stops – it is simply warning potential consumers that they might think about getting a refundable deposit rather than a non-refundable one – but it’s indicating that it will allow consumers to go to net metering. The irony is that consumers are probably better off that way in any case, because instead of receiving a gross tariff of 20c per kilowatt hour for electricity produced by their solar panels, and possibly paying more for all the energy they used, they would simply deduct the amount of energy fed into the grid from that consumed in the home.

With prices already above 20c/kWh in some areas, particularly those with time-of-use metering, and destined to quickly rise above it elsewhere, a net metering system would offer a greater hedge against rising costs, peak rates and encourage energy efficiency. Installers say many of the recent customers had already been opting for net metering systems rather than the 20c gross tariff.

Russell Marsh, the policy director of the Clean Energy Council, says the demand for rooftop solar has been seriously underestimated, particularly as a hedge against rising electricity prices, which are mostly being driven by upgrades to existing generation facilities, and transmission and distribution systems, particularly to meet peak demand. “You don’t need extremely generous tariffs to drive demand,” he says."

[Lizard]

I see CEO resigned after only starting in April. Must be some gossip there?!

[percy]

I see CEO resigned after only starting in April. Must be some gossip there?!

Not the sort of announcement a shareholder likes to see.It was funny yesterday,just after the announcement AIR SP rose.It was the only one on my watch list to do so.! Did not take long for it to drop.!!!

[soulman]

The government has screwed another company in AIR.

Capital raising has been flagged. Got info on AIR from TWD other spinoffs in ResiWeb, which will go ex on 19/3/12. I bought some TWD on Fri just for the exposure plus TWD is yielding at more than 10% FF. Can't resist a bargain.

Anyone still holding AIR? Shares has more than halves in the year of the incompetent Australian government.

[percy]

Yes unfortunately I am still holding.