Smartcool is Really Cool
Someone approached me a couple of weeks ago to pitch me an incredible company with a smart device that can save big energy users from 18% to 30% on their air conditioning energy bills. I listened carefully. Then I went and bought some shares. The story is incredible.
First a little history so you understand the device. Air conditioners are right at the top of the list for sucking up expensive energy. Air conditioners cool rooms or refrigerated trucks or buildings by circulating fluids. When you fire up an air conditioner, the cooling fluid is the densest and the most effective. As the temperature drops the cooling fluid warms up and becomes less effective. By the time the air conditioner gets to the desired temperature the AC is at it’s least effective and uses energy at a far higher rate than it did at the beginning of the cycle.
The brains at Smartcool designed a device that would make the air conditioning compressor cycle on and off. It’s on until the cooling solution warms up and then it switches off. When the cooling solution has regained its density and efficiency, it cycles on until the desired temperature is reached. Thousands of tests prove the use of electricity is reduced by up to 30%.
As with many other great inventions, the team behind the design fell in love with the project. Since they loved it, everyone should. That’s one of those great concepts that sounds great in the laboratory but rarely works in the real world. The company floundered for years even while everyone who saw it thought it was a great idea but a poor execution.
The board brought in a new management team two years ago in the person of Ted Konyi. Ted has a real business background in the oil and gas business. He understands the concept of profit and loss. It’s taken him two years to work out the bugs but the company is on the verge of explosive growth.
The first thing Ted did was to take the design to China and have it totally reengineered. The cost of producing the device has been lowered by 94%. Basically it’s a computer chip controlled electrical box that plugs into any air conditioning compressor without any modifications. Once Ted got the price down, he set out to recruit a new sales team.
The sales group is partnering with facility management groups who control many businesses or buildings. One, in England, has some 18,000 buildings under management all of which could use the device. The management team went to end-users and asked them what it would take to make them consider installing the energy-saving devices. Almost to a man, the end-users wanted a financing program, so Smartcool is in the process of doing at $5 million debenture to provide the bridge financing for customers.
Basically, the end user signs a three-year contract and pays six months in advance. The cost of the device is often less than what the energy would cost that it saves so the unit is pretty much self-financing. At the end of the three years, the Smartcool piece is totally paid for and belongs to the customer. The customer continues getting the reduction in energy costs.
Here’s where it gets slick and why I think Smartcool is an easy ten-bagger. The six months payment up front pays for the entire cost of the unit. Smartcool has no competition and a 90% profit margin. That’s about as close to a license to steal as you can ever get. The reason the company floundered up until Ted Konyi took over was it was too easy. Those sorts of deals always fail.
I wish the company had fewer shares outstanding but in fact it is the size of the pie that matters, not how many slices it is cut into. I just am more comfortable with stocks that don’t look as if they are on their beam end.
Smartcool is focused on the business and commercial market for now but when they are ready to pursue the home market, the market is going to show curvilinear growth. Expect a growth rate of triple digits for the next couple of years. Ted Konyi and Smartcool have a really cool idea.
Smartcool is an advertiser and I have bought shares in the open market. Naturally I am biased. Do your own due diligence.