Benefiting From The Green Energy Movement
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Two weeks ago we discussed the huge underlying changes occurring in the global automotive industry and how these long-term shifts were positively impacting the demand for lightweight aluminium - thus, buy Alumina (AWC). Based upon similar fundamental trends there has been uplift in demand for electric and hybrid powered vehicles globally with the biggest beneficiary being Tesla. Other manufacturers have had mixed success with electric vehicles, but mostly this has been due to a woeful product that is too expensive and with the recent fall in energy prices has failed to convince electric is better than combustion.
One small Australian company is kicking goals in the electric vehicle market, specifically scooters, taking advantage of the huge demand across Asia for two-wheeled powered transport and the fact that in some cities within China pollution is so bad that it is now illegal to purchase a petrol powered motorbike or scooter. It has to be electric.
Vmoto (VMT) really came to light and captured our interest in 2013 when the company began to shift units in meaningful size after completing its manufacturing facility in China. It launched its own branded scooter that year, before which it was supplying scooters to PowerEagle Electric (China) under an Original Equipment Manufacturing (OEM) contract.
Since then the company has been breaking new ground with distribution channels set up across Europe, South East Asia and South America for its Vmoto brand. Its presence in China is really gathering momentum and the company has 16 retail stores as well as an additional 15 distributors. Negotiations are currently in place for expansion into North America, UK, and Turkey.
The net result can be seen in the company slide below where sales have been aggressively growing not just for its OEM contract but more importantly in the significantly higher margin Vmoto brand. This year forecasts are for a production of more than 93,000 units translating to $5-7 million in NPAT vs $3.2 million (underlying) last year. It’s also important to be aware that the manufacturing capacity of its plant in China is 300,000 two-wheeled units which still provides huge scope for growth.
Vmoto’s growth in the next three years will also benefit from its recent joint venture to expand into three and four-wheeled vehicles in China. Vmoto will have a 20% equity interest in this JV at a cost of up to $1.5 million. Three-wheel electric vehicle production in China has expanded from 0.5 million units in 2004 to 10 million in 2013 and the JV is expected to produce and distribute between 20,000 and 50,0000 units in its first year.
As the global push towards cleaner forms of transportation especially in countries like China where pollution is a major issue and Governments have a policy to tackle these issues, the electric vehicle market will grow aggressively. Unlike Tesla which is struggling in China with high entry points and a brand focused on a small market segment, Vmoto is open to the masses and in a region where two-wheel transport is a way of life.
In 2013 the share price enjoyed a strong price appreciation from 1.5c all the way to 6c but for the past 18 months has been consolidating those gains as it has awaited sales and profitability to catch up. This is a regular occurrence in growth companies and a consolidation of 12-18 months is usually the norm before the next price explosion begins. Provided the company delivers, the uptrend in the share price continues. We can see that the recent profit upgrade has helped the share price jump above 4c and importantly held those gains in recent weeks. This is a strong reflection of the underlying buying support in the stock.
A move up through 5.1c will take it to its highest level in 12 months and give the stock enough momentum to break through to new highs and establish the next 2013-like uptrend which brings targets towards 8c into focus.
Considering that at a market cap of $65 million, growth exceeding 30% per annum a price earnings multiple of just of 10x is truly cheap and really underpins why this company is primed for a huge re-rating. A slow mover to date, Vmoto could really accelerate and potentially be dubbed a “mini Tesla”.
Greg is the Head of Proprietary Trading at Gleneagle Securities and has over 20 years of experience as proprietary trader and high level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank. He has been involved across all asset classes including commodities, bonds, currencies and equities right across the globe.
After a 10-year career within the comforts of the large investment banks and research firms he branched out on his own to form his own proprietary trading firm successfully building the business into a multi-million dollar trading operation that turned over a billion dollars a year. This same team now runs the proprietary trading desk at Global Prime, risking their own money in line with the firm's and client's capital.
Greg has appeared on CNBC, Channel 9 - Business Sunday programme, a guest columnist for the Australian Financial Review, a regular author for Personal Investor, Wealth Creator and Shares magazine and is the former Treasurer of the Australian Technical Analysts Association.