Eco Investor February 2015

Pre-Profit Securities

Solco Downgraded to Pre-Profit Company

There was a modest uptake for Solco's shares under its entitlement issue with the solar energy company receiving 184 subscriptions for $689,294 of the $4.1 million in shares it offered. The take up rate by capital raised was just under 17 per cent. It is not a huge gesture of support for the back door listing of GO Group that will become Solco's main business, but it is enough as Urban Group Energy, the vendor of GO Group, underwrote the shortfall to the minimum sort of $3 million.

The modest take up rate is likely due to a mixture of shareholder disappointment in the performance to date of Solco and clean energy micro caps in general, the uncertain outlook for the solar and renewable energy sectors, and the prospects for GO Group which is a relatively new business, having begun in 2010.

Although GO Group is described as "essentially a start-up company with limited trading history", Urban Group was confident enough to underwrite the offer and to a not insignificant sum. Solco and Urban Group are working to place enough of the shortfall with third parties to meet the requirements for re-admission to the ASX, and the period for Urban Group to subscribe for the shortfall shares has been extended to the earlier of when the requirements are met and 2 February.

All going well Solco should soon be relisted and have a new and revenue generating business as a clean energy retailer and financier. But it will be a big job and take some time to establish investor confidence that the business can perform and deliver for shareholders.

Meanwhile, Eco Investor has downgraded Solco to a pre-profit company. Solco's prospectus gave a pro-forma loss of $291,00 for 2014 for Solco and GO Group combined. The prospectus says "GO Group is now in a position to generate a profit, however because it has yet to do so, GO Group has no certainty around when this may be achieved or how profitable it will be. Go Group is not in a position to give any guidance around likely revenue or profit."

Go Group's 2013 revenue was $88 million, so it is not small in potential.

So, some promise but not a lot of history on the performance side. On the positive side, Solco has survived as a clean energy company and the ASX should soon have a stock offering clean energy finance. (ASX: SOO)

 

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