Struggling solar product maker Carmanah Technologies Corp. has begun the process of divesting some of its unproductive divisions, with a deal to sell its consumer products arm to one of its directors.
The Victoria-based company will sell its solar home power business for $1.5-million to David Egles, who has quit the Carmanah board to run the division as a private business.
Mr. Egles joined Carmanah in 2005 when it bought his solar company Soltek Powersource Ltd.
Soltek manufactured solar systems to generate electricity for homes and businesses, so it added a large new enterprise to Carmanah’s existing operations which specialized in solar-powered lighting and LED-illuminated signage.
But since the merger, Carmanah has been hit by the high Canadian dollar and a surplus of high-cost inventory, both of which have dented earnings.
Consequently, Carmanah’s new chief executive officer, Ted Lattimore, said in November that he wanted to sell off some of the company’s operations that required custom design in order to focus on more profitable generic lines.
The home solar power business was one of the units to go on the block, and Mr. Egles has now taken it off Carmanah’s hands. The company still intends to get out of the market for custom designed solar lighting for transit systems, another business that doesn’t lend itself to economies of scale.
Under the terms of the sales agreement for the home power business, Mr. Egles will pay $500,000 in cash to Carmanah, and return $1-million in shares to the company. He’ll still own about 1 per cent of Carmanah after the deal is complete.
Ralph Garcea, an analyst at Haywood Securities Inc. in Toronto, said the cash Carmanah will get from the sale will help shore up its balance sheet, and the return of Mr. Egles’ stock will help boost share profit in 2008.
Still, the new management will have to demonstrate that it can “return to the growth trajectories of the past,” when Carmanah was a hot stock, he said. “The company has stabilized. Now its just a question of finding the right growth to focus on.”
Two years ago Carmanah stock was trading at more than $4 a share, but it has dropped sharply since then.
By contrast, some other Canadian companies in the solar sector – such as Arise Technologies Corp. and Timminco Ltd. – have shown massive stock price gains in recent months.
Mr. Garcea has a 52-week target of $1.50 on Carmanah shares, with a “sector perform” rating.
Close: $1.20, up 1Â¢