Sheffield Green: laboring for green energy

Disclaimer: This article discusses stocks for informational purposes. Do not make financial decisions without consulting your fiduciary.

The green transition will require many things: new technology, innovative engineering, tons of raw materials, financing mechanisms, policy design, and political action. Often forgotten among these is blue collar labor. We need construction workers and engineers to build solar power plants, wind power plants and the grid infrastructure to implement the green transition. Sheffield Green (SGX:SGR) addresses this labor gap.

Sheffield Green is a Singapore-based microcap company that procures and manages labor for green projects worldwide. A spinoff of Sheffield Energy, it takes the labor expertise for offshore oil projects from its parent company and applies it to green projects, in particular, offshore wind projects. Sheffield Green navigates the complex technical labor requirements of the projects such as staffing, training, payroll, immigration, and transport. Given the tailwinds for green transition, Sheffield Green is well-positioned to deliver substantial long-term gains to its investors.

The background

During the oil and gas sector downturn in 2015, Sheffield Energy and its Chief Executive Officer (CEO) Kee Boo Chye sought for peripheral market opportunities related to human resource staffing. They hit upon offshore wind farms: these mega-projects, popping all over the world, showed a rapidly growing addressable market. Offshore wind farms, although more expensive than their onshore counterparts, do not share the land constraints of the latter and are much less intermittent. More importantly though, offshore wind farms have very similar labor requirements as offshore oil projects, making the expertise of Sheffield Energy valuable in this area.

Sheffield Energy thus pursued this new, growing market of offshore wind projects. In 2018, the company focused specifically on offshore wind projects in Taiwan. The Taiwanese government has announced an ambitious goal of producing more than 15 gigawatt (GW) via wind energy by 2035 (roughly equal to 8-10% of total electricity generation in Taiwan). Riding on the back of Taiwanese mega-projects such as Formosa and Changfu, the company has positioned itself as a market leader in Taiwan for offshore wind human resources provider.

Sheffield Green (SGX:SGR) was incorporated in 2021 as the formal arm of Sheffield Energy to pursue the market for renewables human resources provider. Capitalizing on its position in Taiwan, it pursued additional opportunities in France and Japan. The company went public in October 2023 with a market cap of USD 38 million and free float of USD 3.8 million. The stated objective of the initial public offering (IPO) was not to raise capital, but to build credibility and reputation. Since then, it has been aggressively pursuing opportunities across the world, including the United States and Poland.

An interview with Sheffield Green's CEO, Kee Boo Chya, regarding the company's vision and IPO decision.

Company characteristics

Sheffield Green starts with a major advantage given the human resources expertise of Sheffield Energy, as well as its databases of potential workers and hiring companies. Furthermore, Sheffield Green is distinct from other players because it offers a full suite of services including worker-company matching, hiring, payroll, visa & immigration, insurance, and transport. These services are hassles which companies would much rather someone else deal with.

Most importantly, Sheffield Green appears to have healthy cash flows, which is not always the case for staffing companies. At the end of 2023, it generated its first yearly profit of SGD 3.4 million, amounting to a net profit margin of 12%. Revenue and book value grew more than 250% over 2023. The numbers are consistent with the explosive growth stage of startups, except that Sheffield Green is a spin-off of a well-established company and has already demonstrated profitability. It should be noted though that the revenues are highly volatile given that they are tied to a handful of mega-projects, each with their specific timelines.

Follow the CEO

It is difficult to evaluate companies with short histories. Standard methods of valuation, based either on price-to-earnings ratio or on discounted cash flows, require a sufficiently long time series of financial data. For Sheffield Green, a better approach is to follow the actions of the CEO.

When Sheffield Green underwent its IPO, the CEO Kee Boo Chye, retained 70% of the shares through the parent company. Furthermore, the CEO has personally bought shares back on at least two major dips: official documents show him buying shares when the price fell from the initial IPO of SGD 0.25 to SGD 0.23, and then to SGD 0.17. Such high ownership and insider buying activity points to the CEO’s strong conviction in the Sheffield Green thesis. I derive my confidence in this investment from the CEO’s actions, along with a general macro view of the growth of the offshore wind sector.

Risks

The flip side of a company where the CEO owns 70% of the shares is that the whole company may become a one-man show. There seems to be very limited investor engagement by the company. The board of directors do not own a significant number of shares, and there is therefore a risk that board may simply defer to the CEO’s judgment in most cases. Furthermore, as of June 2024, Sheffield Green does not have a dedicated investor relations email. In essence, Sheffield Green is operating as a startup while donning the clothing of a public company. This may not be a bad thing, as allowing the CEO to focus on the company may boost profitability. However, some risks remain, as the CEO may be missing out on the benefits of the checks and balances afforded by a vibrant, independent, and invested board.

Future prospects

Sheffield Green will continue working on the major projects of Taiwan. In fact, it appears that Taiwan will be its major revenue source for several years to come. Beyond its current project locations of Taiwan, France, Poland and Japan, Sheffield Green is in the process of opening an office in the US to capitalize on offshore wind opportunities in the New York state. The US, however, presents some geopolitical risk because the Republican candidate has taken a position against offshore wind farms.

Overall, it is safe to say that the global offshore wind sector and the broader renewable energy sector are bound to grow over this decade. And where such projects arise, there will be healthy demand for construction staffing.

Conclusion

Sheffield green is a startup-like company that is experiencing rapid growth in the renewable energy human resources market. The opportunities in the sector are growing globally, so the company is well-positioned for value appreciation over the decade. The key challenge is that the company is young – there is no record to judge it on. In such a case, my strategy is to trust the CEO and follow his lead in buying the stock.