Enfield Solar Supplier Picks Tough Time For An IPO

An Enfield company that has emerged as a key supplier to the solar power industry faces an uncertain market as it gears up for a $300 million initial public stock offering.

STR Holdings Inc., which employs 1,700 at facilities in the United States and Spain, produces encapsulants that shield solar modules from the elements.

Plans for the IPO, announced July 31, come at a time when shares of leading solar power companies are well off their highs and as both Spain and the United States are likely to cut back on vital solar subsidy programs.

Spain’s program, set to expire in September, is expected to be reduced to 300 megawatts, down from its current coverage of 1,200 megawatts. STR Holdings sold 504 megawatts of solar module equivalent of encapsulant in Spain last year, compared to 561 megawatts at its three U.S. facilities in Enfield, Somers and St. Augustine, Fla.

Tax Credits Expiring

Spain’s announcement last month and expectations that the U.S. federal tax credits for solar power will expire at the end of the year has contributed to a big drop-off in solar power stocks, analysts said.

“Right now, solar can’t compete with traditional power sources on its own,” said Rick Hanna, a Morningstar analyst who tracks solar power companies. “Traditional coal-based energy is superior, but governments have been willing to foot the bill in order to develop the market [for solar power]. So, depending on how governments support it, that’s been the indicator.”

Scott Sweet, managing director of IPO Boutique, said solar power companies haven’t been reaching their revenue numbers because they overestimated market demand.

“(Shares) were artificially too high based on last year’s frenetic buying,” Sweet said. “Now they are coming back to reality. The reality is that they were over-priced and more players are coming into the market.”

Like Dot-coms

Hanna compared the situation to the dot-com boom in 2000 when overvalued Internet companies sold at outrageous prices only to plummet back down to earth.

Although he expects long-term growth from solar companies, he said that investors should have been more patient.

“Solar has a lot of solid fundamentals, and certainly the Internet is as big as we anticipated,” Hanna said. “But maybe for some of the benefits, they’re going to accrue a little bit longer term.”

STR’s announcement comes on the heels of a disastrous — and highly anticipated — public offering by GT Solar in July.

GT Solar, which makes cell manufacturing equipment and production lines, is now the subject of several class action lawsuits after one of its biggest customers announced it was ending business ties with the company the day after the initial public offering. The opening day price of $16.50 per share has since dropped to below $11 in just three weeks.

As a supplier, STR Holdings is in a good position, Hanna said. Within the solar industry, there’s a debate over whether thin-film PV cells or silicon PV cells are better. STR Holdings’ encapsulants work for both, covering photovoltaic cells on solar panels.

In its preliminary registration filing with the Securities and Exchange Commission, STR Holdings said it believes it is the primary supplier of encapsulants to its top 10 customers, mainly the industry leaders.

“No matter what you’re using, you have to have them in a module, and those modules are encapsulated to protect them from the elements,” Hanna said.

Last year STR Holdings’ encapsulant sales were $78.6 million, up from $9.9 million in 2003. The company, which expects to open a new facility in Malaysia in the fourth quarter, projects that it will more than double production capacity by the end of next year. 

STR was founded in 1944 as a plastics research and development company. In the late 1970s it began selling encapuslant products under the trademark PhotoCap.

The company was acquired last year by DLJ Merchant Banking Partners IV and other investors, including members of the STR Holdings management team.

Company officials declined to comment, noting the SEC has a mandatory quiet period during which a company is limited in what information it can release to the public between the time it files a registration statement and that statement is declared effective.