An Under-The-Radar IPO, Smith Electric Sees Huge Backlogs

| About: Smith Electric (SMTH)
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Electric vehicle maker Smith Electric Vehicles (SMTH) is set to price its initial price offering the end of this week or beginning of next week. The company sells zero emission commercial vehicles. Smith Electric is looking to sell a total of 4.45 million shares, with 4.22 million coming from the company, and an additional 0.23 million are being sold by existing shareholders. The pricing is expected to be $16 to $18 per share.

The company's fleet of vehicles are sold to customers in the following areas:

  • Food and Beverage: Frito Lay, Coca-Cola

  • Utilities: KCP&L

  • Retail: Staples, Duane Reade

  • Grocery: Sainsbury's

  • Package Delivery: FedEx, DHL, TNT

  • Military: Army, Navy, Marine Corps

The Smith Newton is the company's primary vehicle. Vehicles range in size from 14,000 to 26,400 pounds. Vehicles can go 40-150 miles on a single charge. The Newtons are sold in the United States and internationally.

Smith Edison is the company's smaller lighter duty electric vehicle sold in the United Kingdom and other territories. Edisons range in size from 7,700 to 10,100 pounds. The vehicles can travel 55-110 miles on a single charge.

Advantages that Smith Edison has are:

  • Lower cost per mile

  • Less volatility

  • Less maintenance

  • Minimal infrastructure requirements

  • Fuel efficient with low environmental impact

Pike Research LLC says the average cost for a commercial vehicle is $0.72 per mile when using a diesel engine. Electric vehicles see the average mile cost $0.22. Once more large companies recognize this, they will make the initial investment in Smith Electric technology. Smith Electric competes with Ford (NYSE:F), ZeroTruck, and Electric Vehicles International.

The company lists the following as its competitive strengths:

  • Focus on commercial electric vehicles

  • First mover with established major commercial fleet relationships in the United States, Europe, and Asia

  • Low capital intensity of production

  • Our vehicle and system design facilitates component-based cost reduction and protection of our trade secrets and know-how

  • Modular battery system design that allows customers to configure each truck's range based on its application and significantly impact the total cost of vehicle operation

  • Focus on medium-duty commercial vehicles positions to avoid competition with heavy-duty truck and light duty automotive OEMs

Smith Edison sold 270 vehicles in the year ending 2011. The six month period that just ended on June 30th saw 90 vehicles produced and sold. Smith's backlog (as of 08/31/12) consisted of 444 vehicles. To put this in perspective, the company's backlog was only 145 as of 03/31/12. For fiscal 2012, the company expects to produce 380 vehicles, representing growth of 41%.

Financially, Smith Electric needs some work to turn a profit. The company saw revenue of $49.9 million in fiscal 2011. A net loss of $52.5 million was posted for that most recent fiscal year. In the six months ended June 2012, the company posted a loss of $27.3 million on $16.8 million in revenue.

Electric battery maker A123 Systems (AONE) could see its stock jump along with a successful IPO. The company that once traded above $25 is now trading below $1. Smith Electric said in its retail roadshow that it is turning to A123 to provide batteries for its vehicles going forward. This is the start of an attempt to lower production costs by utilizing medium-sized vendors, rather than the current low volume suppliers used by Smith.

Proceeds from the sale are being used to pay off principal and interest on several loans. One of the loans that will be paid is a bridge note from Tanfield prior to the IPO. Tanfield will now own 23% of Smith Electric after the offering, and will also see an 8% interest on its notes.

This IPO is not going to leap out at everyone with a screaming buy. I would wait and see where shares price and if they are below range, I would be a buyer. If the company sees a good IPO, I might jump on the A123 side instead to see a short-term gain. Either way, I think Smith Electric is a great company for the future as companies shift to electric vans to save on costs.

Disclosure: I am long F. I may initiate a long position in SMTH or AONE in the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.