The fears about the approaching winter in Europe started already a few months ago: following the Russian invasion of Ukraine and the sanctions imposed on Russia, the countries of the continent had to wean themselves off the gas exported from Russia, and energy prices rose significantly.
● The gas price crisis in Europe permeates a number of green energy stocks in Israel
● In an attempt to find new territories, the solar industry is targeting the North Sea
The fear of a lack of energy for heating in the winter months led to saving measures, such as turning off the lighting of famous sites and limiting the heating temperature in public places. At the same time, there was an increase in demand for renewable energy solutions, and those who benefited from this in the third quarter of the year were solaredge the Israeli one.
The company that provides systems for monitoring and optimizing solar energy and energy storage solutions, published its third quarter reports last night (Monday) after trading hours, and its stock is now jumping more than 10% in early trading. After the increase in the stock, SolarAdge is traded on Nasdaq worth 13 billion dollars after losing 37% from last year’s record, and is currently the third most valuable Israeli company in the US, after Mobileye and Check Point.
Solaredge reports “strong momentum” that it recognizes in Europe, with a 90% increase in revenues from the continent compared to the corresponding quarter in 2021 and 42% compared to the previous quarter this year. In Germany, the largest market in Europe, revenues increased by 125% compared to the previous quarter, and record revenues for the company were also recorded in the Netherlands, France and the United Kingdom.
The revenues from the solar field in Europe amounted to approximately 476 million dollars. In total, the company’s revenues in the quarter were 837 million dollars (of which 789 million dollars from the solar sector), an increase of 59% from the corresponding quarter. Since the beginning of the year, revenues have grown by 57% to approximately 2.2 billion dollars.
The weakening of the euro hurt revenues
In the conference call held by the company after the publication of the reports, the CEO of Solarage estimated Zvi Lando, that the momentum will continue in 2023 as well and noted that the amount of new orders is high. “During the quarter we gave priority to deliveries to Europe following the challenging winter expected there,” Lando said, noting mainly the domestic market (private consumers). The result was a decrease in revenues from the USA compared to the previous quarter – by 19% to approximately 252 million dollars, but the company estimates continued growth in the commercial market in the USA next year.
“The geographic distribution of revenues does not necessarily represent the levels of demand we see in each region,” CFO Ronan Pierre emphasized in the conference call. According to him, the expected expansion of production in Mexico will close the supply gap to the USA, and the existing production in China, Vietnam, Israel and Europe will be directed Mainly to Europe.
Revenue growth in Europe also has a less positive side for Solaredge: since most of the revenue from the continent is in euros and the company reports in dollars, the weakening of the euro negatively affected revenues and deducted $31.7 million from the top line, while also eroding gross profit. In an attempt to compensate for this, Solaredge raised prices in Europe, but Pierre noted that the effect of the price increase on results usually comes only after a quarter or two.
Gross profit margin (Non-GAAP) was 26.5%, down from 32.8% in the corresponding quarter but an improvement from 25.1% in the previous quarter. The company explained the improvement, despite the vulnerability of the exchange rates, in the optimization of operations, the increase in production capacity as well as the reduction of transport prices and component prices. That is, after several rather difficult quarters in the field, it seems that there is an easing of the supply chain difficulties. And yet Solarage sometimes sends its customers fast deliveries at higher costs to the company, in order to meet the demand.
In the bottom line, Solaredge recorded a net profit of 24.7 million dollars in the quarter, down from 53 million dollars in the corresponding quarter, and since the beginning of the year the profit amounted to 73 million dollars. On a Non-GAAP basis, excluding various accounting items, the quarterly profit was 54.1 million dollars (lower than analysts’ forecasts) and since the beginning of the year amounted to 180 million dollars. In the fourth quarter, the company expects revenues of 855-885 million dollars and a further improvement in gross profit to 27-30%.
“manages to lower shipping costs”
Sergey Vaschunok, senior analyst at Oppenheimer, emphasized from the reports the acceleration in the growth rate and the reversal of the downward trend in the gross profit rate, despite the negative impact from the exchange rates. “Solaredge is able to offset the impact by lowering shipping expenses and increasing the production mix outside of China, mainly thanks to the progress in the new plant in Mexico.
“The increased emphasis on the European market, at the same time as the weakening of its position in the US market, increases the risk of the effect of exchange rates, but allows to take advantage of the serious energy crisis in Europe in order to strengthen its leadership in the region. If the exchange rate of the euro strengthens again against the dollar – the company should benefit significantly from this,” Vaschunok concluded.