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#Opus: positive operational update

logoIt’s been a while since we have written about Opus. Following a steep drop in its share price, we believe the time has come to be opportunistic and go long the share. One reason for the decline was an extended period of silence from the company.

This morning, however, Opus announced that Opus Inspection successfully began vehicle inspection operations under its renewed exclusive contracts in the States of Colorado and Indiana. Opus Inspection also successfully launched its new rental program of DAD-OBD equipment in the State of California with over 4,100 signed rental contracts. All these operations began on or around January 1, 2015. The vehicle inspection program in Colorado, under the new contract, was successfully started on January 1, 2015. The new contract period is five years and can be extended by the Colorado Department of Public Health and Environment and Department of Revenue for an additional six years (2 + 4 year). The annual test volume in Colorado is expected to decrease in 2015 by approximately 212,000 vehicles due to new regulations that will increase the model year exemption for new cars from four years to seven years. To compensate for the reduced test volume, Opus Inspection has successfully reduced its operational costs, among others by changing the test type for certain model year vehicles from the time intensive IM 240 test to a faster and more efficient OBD test. Further improvements to operational expenses in Colorado are necessary to compensate for the lower inspection volume in Colorado, according to the company.

In addition to Colorado, Opus Inspection successfully started the vehicle inspection program in Indiana under a new contract. The new contract term is four (4) years, through December 31, 2018, with an option for the State to extend the contract up to four (4) additional years. Financials for the Indiana program where OpusĀ  performs emission test and registration renewal services are essentially unchanged compared to the previous contract. Approximately 220,000 vehicles will be tested annually under the new contract.

Further, in 2014 Opus launched a new business model for its activities in California by offering full service rental contracts for DAD-OBD equipment. The business model has proven to be significantly more successful than anticipated. To this date, Opus Inspection has signed over 4,100 rental contracts with workshops in California, with that number increasing daily until the final implementation date of March 9, 2015. Opus Inspection is offering all new OBD System equipment through an open-ended rental agreement, which includes delivery, installation and service warranty. The new OBD emission testing equipment will be used in California for many years to come. Opus Inspections new business model in California will lead to increased revenues and improved margins. There is further growth potential for Opus Inspection in the California equipment market in 2015 as soon as its newly designed BAR-97 Emissions Inspection System (EIS) Gen3 is certified by BAR for sale. Opus Inspection is the only company launching an all new BAR-97 analyzer in California. The new EIS Gen3 rental contracts allow smog check stations to replace the older generation equipment that is at least fifteen years old. An EIS is required in approximately 3,000 STAR certified Smog Check stations located in California, optional in all other stations, and will be used in addition to the new DAD-OBD equipment. The BAR-97 EIS tests vehicles under simulated driving conditions to detect oxides of nitrogen (NOx), hydrocarbons (HC), and carbon monoxide (CO) emissions; major chemical components of smog. Opus Inspection will offer these stations rental agreements in the same form as for the DAD-OBD equipment, including full service to the Smog Check stations

Says Lothar Geilen, CEO of Opus Inspection: ” We are excited to have delivered three successful program start-ups during the past few weeks. We appreciate the great teamwork between the Opus Inspection engineering, operations employees and our customers, the state agencies DPHE and DOR in Colorado, IDEM in Indiana and BAR in California. I am looking forward to further success in California in 2015 with our new Gen3 BAR-97 analyzers, which are newly designed for the tough emission inspection environment in California smog check stations.”

We note that Opus’ CEO and the CEO of Opus Bilprovning both bought 100,000 shares each in December at around SEK 9, which is around 20% above today’s share price level.

Nordic Investor

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