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:
We believe that Legend is at the beginning of a major growth spurt and has been significantly de-risked for investors. Why?
- Record Q2 (ending March 31, 2018) revenue of $1.9M, up 91% y/y
- $968K order by two colleges for 8 Harmonizers (Legend’s energy conservation product)
- An order of 9 Harmonizers for a channel partner
- $600K order from a college
- $930K follow-on order for 10 Harmonizers
- The Company has now sold over 200 Harmonizers across 14 end market verticals and has no direct competition.
- 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.
- 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.
- 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.