Small Cap Network Blog

Well, they’ve gone and done it again. Small cap company Smart Energy Solutions (SMGY) has found another partner to help distribute their Battery Brain product, incrementally adding the number of units they’re likely to sell on a ‘per month’ basis. Back to that in a second; first a look at the details of the news for owners of this small cap stock pick.

Actually, it’s not quite accurate to say they found a new front-man for the Battery Brain. It’s the same device, but it’s going to be sold by OnGuard Dealer Services as a private label item. That’s not the big deal though…Smart Energy sells a lot of the device under someone else’s brand name. Take Honeywell (HON) for instance - well, actually their subsidiary Autolite. Autolite sells the battery-saving hardware under their own brand name. Smart Energy still scores some nice wholesale revenue from the effort though.

No, the big deal here is OnGuard’s market - car dealers. We’ve seen Smart Energy tap into this market slightly, when they announced a Macon, Georgia Kia dealer was going to start offering the ‘Reserve Power Module’ (which is just a Battery Brain for dealers) on its cars. That was just one dealer though. Today’s news opens up a relative universe of new and used car dealers. The scope of the potential is the exciting part.

Per the press release, 40 million used cars are sold every year in the United States - a number I was surprised by. There are also about 16 million new cars sold every year in the United States - a hefty number I already knew of. That’s about 56 million potential ‘customers’ for Smart Energy each and every year.

Will OnGuard be able to get a new ‘Brain’ on the car involved in each of those transactions? Of course not, but given enough time they should be able to get a solid number into some of them. Let’s just think ultra-conservatively though, and say they achieve a 1% penetration - that’s 560,000 units.

For reference, Smart Energy has sold about 180,000 so far, so this is obviously a nice win for the company. (It’s also worth noting Smart Energy is building armies overseas as well, so the number of ‘customers’ isn’t limited to the United States’ numbers.)

I’ve been using an estimated wholesale price of $25 for Battery Brains. That’s probably not exactly right, but my goal is to provide scope - not an accounting statement. At that price, a 1% penetration would translate into sales around $14 million. And frankly, 1% seems on the low side to me. Only time will really tell though.

Anyway, I want to stress again the pace of sell-through the company has been creating of late…about 7000 units per month. Annualized, that’s about 84,000 per year. Folks, as of January of this year they had only sold about 180,000 (total) since March of 2005. The pace is quickening….a lot. That shouldn’t be a surprise though - they seem to add a new dealer, outlet, or representative about once per month.

I know I’ve been singing their praises here, even as the stock was falling (a fairly unpopular decision). I hope it wasn’t misinterpreted as an all-out ‘buy’ opinion. My point was just that the company was doing its part, even if the stock wasn’t responding. It happens.

Eventually I feel the stock will be priced right. And truthfully, I don’t think SMGY is necessarily priced ‘wrong’ at the current level of 22 cents….based on current results. The thing is, current results are on track to be topped in the foreseeable future. I’ll let the chart tell me when the best time to buy may be. A couple of weeks ago I thought it could have been now, though I don’t feel the same at this point. Like I said though, eventually the company’s progress will be reflected in the stock’s price.

Here’s the news release.

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