PV CRYSTALOW, April 3rd 2014

The share price of PV Crystalox has declined from 150p in 2009 to 27p, with market capitalisation now at £41m.  It also scores highly on Piotroski factos.

It supplies silicon wafers to photo-voltaic (PV) cell manufacturers, most of which are in Asia. A torrid time was had by anyone connected with the PV industry over the past five years as Chinese manufacturers reduced selling prices below cost.  Prices collapsed and many companies went bust.  Trade barriers were erected in three continents as accusations of dumping flew. PV Crystalox found itself with long term fixed-price contracts to take delivery of silicon.  It also had fixed-price contracts with many customers, but the severe decline in product prices in an industry with vast over capacity meant that they could not pay, and so renegotiation and greater flexibility from PV Crystalox was called for.  Years of losses and balance sheet write-offs followed.

2012 and 2013 were years of reducing capacity and ‘operating in cash conservation mode’. Whereas shipments in 2011 were 384MW, they were 108MW in 2012.  They rose to 211 MW, but this is largely due to selling off excess inventory rather than raising output.  Staff numbers fell from 299 at the end of 2012 to 88 in 2013.   So much cash has been generated by reducing the extent of the business that the company was confident enough to hand back €36.3m to shareholders in December 2013.  It still has €39.2m net cash.

Now ‘restructuring is complete’ and ‘considerable progress was achieved during 2013 in lowering our wafer production costs, both internally and at our sub-contractors in Japan…our cash cost of wafer production is now closer to market prices…we are doubling our production output compared with 2013’.  It currently operates at below 20% of its 750MW capacity.  Globally, PV cell installation is rising by over 30% per year, giving hope that supply and demand will be better balanced in the future.

It claims a positive EBIT for 2013 on continuing operations of €6.6m, but scepticism is required because €11.7m was added because of revised assumptions for onerous contract provisions. Also ‘The Board…does not expect the underlying business to return to profitability in 2014’.   While profits are some way off, the company scores well on the other Piotroski factors.

Piotroski factors (for 2013 prelims published in March 2014):
1.     Profitable?                                                        Only in ‘continuing operations’ and only thanks to a provision releasea
2.     Positive cash flow?                                           Yes, after allowing for large decrease in inventory
3.     Positive change in ROCE?                               Yes
4.     Cash flow greater than profit?                           Yes
5.     Positive change in debt to total assets ratio?    No debt
6.     Positive change in current ratio?                       Yes
7.     Absence of equity raising?                                 Yes
8.     Trading margin improvement?                           Yes (lower loss)
9.     Positive change in sales to total assets ratio?    Yes