Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

JETION(AIM:JHL) - Good results, huge demand for its products, seemingly dirt cheap valuation - so why isn't everyone buying?

Jetion Holdings the AIM quoted manufacturer of solar cells and modules announced its maiden interim results for the six months ended 30 June 2007. These all looked rather good and were essentially in line with the pre-IPO research although you wouldn’t believe it looking at the share price reaction.

The outlook looks rosy (they seem to be stacked out with orders for more than 18 months) the second cell line (25MW per annum capacity) is performing well and the Company has further increased capacity since the middle of the year for the conversion of cells into modules.

They are also in discussions with suppliers of equipment for the third and fourth cell lines and they remain on course to expand cell manufacturing capacity to 100MW per annum by the end of 2008, all as indicated at flotation.

Gross margins were lower than anticipated at 13.4% against 14.7% for 2006 and 15.4% for 2007 full year estimates . This was due to more sub-contract work for other cell makers in the first half while moving into H2, silicon prices have moved up 5%.

But hold on. It would have been a miracle if margins had been maintained given all the production related activity. Furthermore, action has already been taken to improve matters and volume and prepayment discounts have been obtained from major silicon suppliers and cell prices have been increased 2% in the market. So they easily make up in the second half

At the time of writing the share price stands at c122p.

The house broker has trimmed (trimmed is the word) its 2007 full year estimates to reflect various cost base changes. This moves the projected profit before tax to US$10.5m from US$11.0m previously on sales of US100m for the full year ended December 2007. But nobody is buying this for the current potential so should we really be interested in these short term aspects!

Estimates for 2008 remain as previously with sales of US$175.5m (why the 0.5m I don’t know!) and adjusted net income of US$18.1m.

At the current share price the shares are trading at c17.7x 2007 full year estimates and 10.3x estimates for 2008.

JA Solar (Nasdaq: JASO) Jetion’s US listed peer is currently trading at over 20x 2008 earnings estimates. JASO is somewhat larger business at a more advanced stage with revenues for the second quarter of 2007 of US$60.0 million and the group’s revenue range for 2007 increased to approximately US$310 million. Production estimates for J Solar for 2007 have been raised to approximately 110MW from prior estimates but by the end of 2008 Jetion will be close to these levels.

Despite its smaller size the discount appears to be ridiculously high.

But who cares about peer group comparison!

Jetion operates in a booming market that is only set to grow further. It certainly looks a step above most of the other highly speculative energy stocks on the UK market, is profitable and has a seemingly cheap valuation. Furthermore, it won’t be that long until the cash starts rolling in.

In addition to the large domestic market there is strong European wide growth anticipated.

Given the market dynamics, post recent falls surely this looks one of the cheapest stocks around (the writer acknowledges to being a holder).

The results were ‘broadly in line’ with the broker’s expectations and the Board believes that the full year results will also be ‘broadly in line with market expectations’. Unfortunately terms like ‘broadly in line’ are not really good enough in the current market.

Markets for solar products remain excellent and the management are showing that they are able to effectively deal with various cost pressures.

All the other noise from the solar market has been very positive, in Jetion's case it’s a pity the same can’t be said of the stock market.

The house broker has stuck with its target price of 200p.


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