Eco Investor February 2018

Pre-Profit Securities

Another Energy Efficiency Hopeful

Energy efficiency companies have found it tough going in the ASX, and while Buddy Platform has had a good share price run over the past year it still has a long way to go to achieve profitability.

In January last year the shares for Buddy Platform were 5 cents, by November they had peaked at a four year high of 41 cents, and this January they were still just above 20 cents. It was a good ride if you caught it and got out at the right stop. So what is the story, and what's the catch?

Buddy Platform sells what it says is simple and low cost internet-of-technology hardware that monitors a building's consumption of resources: energy, gas, water and steam as well as measuring temperature, humidity and solar generation.

The Buddy Ohm system is installed next to power panels, meters, and sub metering systems and gives real time data that allows for real time decisions to reduce consumption and costs. The connectivity is built-in and can collect data from wired and wireless sensors around the building and send it to the Buddy Cloud to be processed and presented. The dashboards can give readings for the sensors in each building as well as aggregate readings across a portfolio of buildings.

Buddy’s products: the Ohm Pulse, Ohm Link, Buddy Ohm, and Ohm Sense.

The company says that for new buildings Buddy Ohm can complement powerful and expensive building management systems to maximize investment returns. For retrofited and older buildings it can identify savings by revealing energy leaking systems in older equipment and provide data for upgrades.

As well as office and retail buildings, the technology is applicable to a wide range of other types of buildings such as stadia, universities, schools, hospitals, residential apartments and resorts. Buddy Platform also promotes the technology's ability to be part of the growing ‘smart city' movement to increase infrastructure connectivity and resource efficiency.

The company's website has case studies where at a multi storey apartment block the system detected vampire power on coin operated laundry equipment, improved vending laundry use, worked out the best scheduling for exterior lighting, and provided data to improve the interior temperature of the apartments. It was able to measure the benefit of tenants changing to LED lights, provide water sub-metering, and help determine the return on investment of switching to either electric or gas laundry machines.

In its own office building in Adelaide, Buddy Platform was able to help reduce energy consumption by 44 per cent.

At the Seattle 5th Avenue Theatre built in 1926, energy and resource costs made up the vast majority of running expenses. Buddy Platform was able to alter the heating, ventilation and air conditioning (HVAC) system to eliminate a night time spike in energy consumption and other costs. It eliminated energy consumption from a system conflict where duct heaters were running while the HVAC system was trying to cool the spaces. The theatre's operations staff were given greater visibility and accountability for the theatre's energy usage and environmental conditions. And it provided a baseline of the energy usage before a future energy system upgrade.

All of this sounds good, as the technology side of energy efficiency stories do, but the financial side is a different story.

Buddy Platform is an early stage company and its revenue in 2016-17 was only $1.04 million, although it grew fast from only $43,000 in 2015-16.

Its full year loss was a considerable $16.9 million, although this fell considerably from a loss in 2015-16 of $26.1 million.

And it couldn't afford another year like that as at 30 June its total assets were only $7.5 million and its net assets were $6.6 million. But its capital problems were eased in October when it raised $23 million at 20 cents per share. In November it raised another $5.3 million through the exercise of options.

So the company has shareholder support and no debt. But it has a couple of very big annual expenses: employee costs of $4.3 million and share based payments of $7.4 million which accounted for the bulk of its losses.

The size of management's job is clear. Revenue has to grow quickly and substantially, and costs have to be contained. At the same time the company is growing and has expenses for new staff and new product developments.

The company operates in Australia and the US and is looking to expand its distribution partnerships and reach. Last July it signed Digicel as the distributor of Buddy Ohm in the Caribbean and Central American markets.

In October it announced a global connectivity deal with T-Mobile USA that allows for a single SIM card platform for all deals around the world that don't involve a carrier supplying their own SIM card.

Also in October it announced a distribution deal with the Canadian arm of major technology distributor Ingram Micro Canada. In December it signed a distribution deal with Ingram Micro USA. In January this was upgraded to a global deal for the distribution of Buddy Ohm through Ingram Micro's network of more than 200,000 resellers in 160 countries. Ingram Micro is now the preferred distributor for most markets world-wide except the Caribbean and Australia.

Among other opportunities, Buddy is working on a deal for the use of its systems over Telstra's network in Australia.

Chief executive David McLauchlan recently told shareholders that the focus for 2018 is turning distribution deals into sales and revenue. So investors will be watching that space with interest.

They will also be watching the share price as insider shares have come out of escrow and Mr McLauchlan said there will be stock sales over the quarter from employees, early investors, directors or officers plus himself. Mr McLauchlan is the company's largest shareholder and will remain so after a planned sale of up to 30 million shares. He said the company will publish a schedule of planned sales so there are no surprises. Meanwhile, the company's shares have been trending down since November.

In January four directors sold $1.9 million worth of shares at between 21.3 and 23.7 cents. Another 33.4 million shares were sold off market.

Buddy Platform floated on the Australian Stock Exchange in November 2015, and is a pre-profit security. It has promise but it also has a long way to go to achieve profitability. (ASX: BUD)