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Sabien Technology (SNT) – Pilot Programme showing promise

Sabien Technology (SNT) – Pilot Programme showing promise.

A broker note from Stockdale Securities.


SabienStockD1The key elements of the interims in our view are that 30 UK pilots have been agreed for this heating season and that the sales pipeline has increased to £6.4m from the last-reported £5.8m. As anticipated the adj. LBT increased to £1.0m in the first half due to the extra costs incurred in increasing the pilot programme. It is encouraging that the company still anticipates meeting expectations for FY2016. With no changes in our forecast of the move towards profitability in FY2017 we reiterate our 50p DCF-derived TP and Buy.


New “free” pilot strategy implemented

Up until last summer Sabien charged c.£20k to run pilots for a potential customers. These involved fitting an M2G device on to at least three of their boilers to demonstrate a 10-25% reduction in gas usage via a report including substantial data analysis. While the proposition should have been compelling it inevitably led to delays as the charge meant that public sector clients typically needed to undergo a tender process first. To take advantage of the substantial level of interest it has built in its boiler optimisation technology and counteract the inertia due to the £20k charge Sabien now includes the cost of the pilot into a roll-out. Importantly, the qualification criteria remain – chiefly a minimum spend of £0.25m, good asset log data and the client’s willingness to devote some of its engineering resource to the pilot programme. To increase the number of pilots it is capable of running, Sabien has increased its headcount by 50% to 24 and has secured 30 UK pilots of its up to 35 pilots in total targeted for FY2016.

Increased sales pipeline

The main reason for introducing the more aggressive piloting strategy was to stimulate a meaningful increase in the sales pipeline. We forecast this to grow from the £6.4m reported in the interim results to £10.8m for the beginning of FY2017. We have used the historical rate of 87% of M2G pilots converting into the sales pipeline and then 69% to an estate-wide roll-out. We have then based our headline forecasts for the sales pipeline and sales on the minimum £0.25m spend. If the historical average of £0.4m spend per client were realised, then profitability would be achieved in FY2017. The company has set itself a five-year target of a sales pipeline of £25m.

DCF valuation captures benefits of the new strategy

In addition to the sales pipeline target of £25m, management also set a five-year revenue target of £8m and EBITDA margin of 25%. With no meaningful profitability forecasts in the next two financial years in our base case forecasts we continue to use a DCF analysis to derive our target price. Our 50p DCF per share assumes a WACC of 12% and a 2% long-term growth rate, both of which are conservative in our view. While we consider FY2016 to be “a year of investment” we are most encouraged by the recent £0.3m order and hope to see news of further orders and building sales pipeline start to drive the share price higher.

Link here to full broker note –Sabien-Tech_Stockdale090216

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