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Sophic Insights – The Weather is Nice, Investors are on Holiday; Opportunity Knocks

Jul 9, 2018 | LPS, Sophic Capital

Time to Start Accumulating Legend Power (LPS-TSXV)

Summer is here and investors have hit the cottage, the patio or just taking some time away with family.  This is a great time to look for bargains and forgotten stocks.  So for those of you reading your emails, we want to highlight a Sophic client that we think has fallen victim to summer doldrums but could be back to darling status in the fall.  The company has been executing, has a strong management team and is on the cusp of potential significant growth as it expands into new markets.     This client is Legend Power Systems (LPS-TSXV), which has now fallen ~50% from its peak in February, 2018 and is down 25% from the price of its $10.5 million bought deal financing (@ $0.80), which closed on April 30, 2018.  When people see moves like this, many assume something must be wrong.  Maybe management didn’t execute or missed expectations, or maybe a new competitor came into the market?  Not in this case.  Since May Legend Power has announced:
  1. Record Q2 (ending March 31, 2018) revenue of $1.9M, up 91% y/y
  2. $968K order by two colleges for 8 Harmonizers (Legend’s energy conservation product)
  3. An order of 9 Harmonizers for a channel partner
  4. $600K order from a college
  5. $930K follow-on order for 10 Harmonizers
We believe that Legend is at the beginning of a major growth spurt and has been significantly de-risked for investors.  Why?
  1. The Company has now sold over 200 Harmonizers across 14 end market verticals and has no direct competition.
  1. With an initial sale into the New York region to a Fortune 100 customer, Legend is now pushing into the U.S. market through a partnership and franchise model. As pilots increase and visibility into this market improves, we expect investors to start pricing in some of this market.  North America is estimated to have a TAM of $38 billion. 
  1. Recent financing eliminates need for capital and provides Legend with the necessary resources to focus on its growth in the Ontario market and U.S. expansion.
  1. Large follow-on orders are an indication that the Harmonizer works. Given the customer base Legend has sold into, we expect new customer logos to increase and a continuation of follow-on deals.