Sabien is using the Green Force

When Sabien Technology’s chief executive, Alan O’Brien, says that his company is going to reach profitability this year, there is compelling evidence to suggest that he is probably right.

O’Brien is adamant that company executives are feverishly testing Sabien’s software technology, called M2G, which is retrofitted to boilers and monitors temperatures and the current load profiles within the boiler and uses complex algorithms to determine whether the boiler is required to fire. It results in energy savings of about 20 per cent, according to Sabien. To have it fitted to a boiler costs £1,850.

His confidence probably comes from the fact that Sabien has the government knocking on the doors of its potential client base of companies with between 50 and 4,000 buildings, telling them that they have to improve their energy efficiency or pay the price.

‘The penalties range from fines to going to jail for people that falsify their records to the environmental agency,’ says O’Brien, ‘Companies are testing Sabien to determine if it’s fit for purpose, and we envisage moving into profitability this year.’

New carbon-trading legislation came into force from 1 April, which makes it compulsory for companies to reduce their energy emissions. According to the UK government’s Carbon Reduction Commitment (CRC), all of the estimated 5,000 British companies that use more than 6,000 megawatt hours of electricity per year must participate. If they don’t, hefty fines result and there are prison sentences of up to two years for executives being found guilty of making misleading statements to Environment Agency inspectors.

Sabien lost just over £200,000 for the six months to December on £438,000 revenues. Broker Arbuthnot forecasts a loss of £200,000 for the current year to June on revenues of £1.5 million. For the following year, however, pre-tax profits of £0.5 million are expected.

The group’s (mostly fixed) operating costs are about £1.4 million, and its gross margin for fitting a boiler is about 80
per cent. So the company is operationally geared, and it is also debt free. In the next two years, earnings are reliant on businesses using its energy-reducing technology rather than looking at the alternatives of voltage optimisation, solar energy or double glazing.

Sabien provides a technology that is relatively cheap and suits both companies that are tenants in buildings and landlords who will be lumbered with increased costs. Solar energy and voltage optimisation are more expensive, and double glazing is not an option for most tenants since they do not own the property.

Already some big names have signed up: O2, Aviva, BT and Lloyds Banking Group. Sabien has also established supply partnership agreements with British Gas and property companies Balfour Beatty, Jones Lang LaSalle and Serco.

The M2G technology is only fitted once so there are no ongoing service fees for Sabien. There are six million buildings in the UK, so there is an adequate market for the company in the short term, but in the long term O’Brien speaks enthusiastically about the company’s technological capabilities: ‘We don’t want to be a generalist,
but we’re looking at other technologies that reduce electricity consumption.’

At 54.5p, Sabien trades on a prospective p/e for 2011 of 36 times, which may seem expensive. However, this accounts for the fact that it is a very small company getting big quickly. Investors are also starting to price in the fact
that Sabien can come up with more technologies that tick the green box.

Importantly with Sabien, however, you are not betting on a company in the high-risk field of generating technology. ‘There needs to be a declassification from clean to green,’ says O’Brien. ‘We’re green because we’re not generating technology, we’re a retrofit.’