FREE

BES: A Micro-Cap That Punches Above its Weight

What you need to know:
• Braille Battery is a market leader in performance batteries for motorsports and racing vehicles. Braille Battery has posted a 56% sales CAGR over the last four years and is soon to be profitable
• BES will be launching a residential battery backup power system in the coming quarters with potential to gain major market share
• BES trades at 0.1x 2024E sales compared to auto parts manufacturers at 0.5x and residential energy storage companies at 3.1x

Braille Energy Systems (BES:TSXV) has two major divisions, Braille Battery (89.95% owned) and the newly launched Braille Energy Systems, branded as Electrafy (100% owned). Braille Battery is a lithium-ion and AGM battery supplier to professional motorsport clients looking to improve performance. Braille Energy Systems is developing the next generation of energy backup power systems, with the potential to gain solid market share. We are initiating coverage on Braille Energy Systems with a BUY rating and target price of $0.15/share.

Investment Thesis Summary
Braille Battery has Consistent Growth. Braille Battery has shown consistent growth over the last four years, growing revenue from $691K in FY18 to $4.1M in FY22 (56% CAGR). This was driven by increasing production at its manufacturing facility and developing brand equity within motorsports. We expect this growth to continue as BES begins its international expansion, which we think will allow the Company to reach enough operating leverage to become profitable in FY23.

Electrafy has Massive Potential. BES is planning to launch a residential backup power system FYQ2/24, followed by its whole home energy storage system. Braille’s systems will be the most cost-efficient in the market and are expected to be sold wholesale to electrical wholesalers, home builders, and major retailers. We think the residential backup power market has various large tailwinds due to the aging grid system and renewable energy transition. We are conservatively estimating that Electrafy will post $8.5M in sales in FY24.

Firebulb Technology is a Key Differentiator. BES recently purchased the exclusive rights for Firebulb Technology, which is the industry’s first passive fire detection system. With lithium fires and safety being a major concern of the EV and renewables transition, this technology will become increasingly valuable and lead to product differentiation for Electrafy systems.

Management Track Record. BES is led by CEO Lindsay Weatherdon, who brings over 30 years of sales and marketing experience, and Chairman Jeffrey York, who was previously Co-CEO of Farm Boy (sold to Empire Company for $800M) and CEO of Giant Tiger ($1B valuation). We think that their combined experience in sales and marketing will help lead Electrafy’s distribution strategy and continue the consistent growth of Braille Battery.

Discounted Valuation. Braille currently trades at 0.1x 2024E sales compared to its auto parts manufacturing peers which trade at 0.5x 2024E sales and residential energy storage peers which trade at 3.1x 2024E sales. We use a SOTP valuation assuming 0.5x 2024E Braille Battery sales and 1.0x 2024E Braille Energy sales, leading to our $0.15/share target price.