Wednesday, June 23, 2010

"Everyone Wants A Piece Of the Electric Vehicle Market " and "The Coming Bull Market In Lead-Acid Batteries, Part II" (ABB; XIDE, HEV, ENS, GE, CHP, AONE,)

When we posted "The Lead Acid Battery Sector Is Starting A Bull Run" (CHP; ENS; XIDE)" my comment was:
Words I never thought I'd post.
Here's more. First up, Tickerspy, yesterday:
As the world prepares for what many believe to be the inevitable proliferation of electric vehicles, battery investors have been on a rollercoaster ride. A number of small-cap pure-plays have seen shares soar by double-digits on new contracts and speculation, only to fall sharply when broad market turbulence weighs on investors’ risk appetite. While it seems likely that at least some of the small-cap players could be big winners as more and more plug-ins hit the roadways, they will be contending with a number of large-caps who want their piece of the pie.

As a whole, Energy Storage and Battery Technology Stocks Index is outperforming the S&P 500 by 3.8% over the past month. Top performers Exide Technologies (XIDE), Ener1 (HEV), and Polypore International (PPO) have all gained more than 10% for the period, and only four of the Index’s eighteen components are in negative territory. However, a look at the stocks’ three-month performance shows an entirely different story, where more than half of the Index is off by -10% or more, and many are off by over -20%....MORE
And from John Petersen at AltEnergyStocks:

The Coming Bull Market In Lead-Acid Batteries, Part II
On June 8th Switzerland's ABB Group Ltd. (ABB) announced an agreement to buy UK-based Chloride Group PLC (CHLD.L) for £860 million in cash, or approximately $1.26 billion. This stunning purchase provides the best evidence yet that lead-acid battery manufacturers including Enersys (ENS), Exide Technologies (XIDE) and C&D Technologies (CHP) are woefully undervalued and offer outstanding opportunity for patient and risk tolerant investors.

ABB is the gold standard in the secure and efficient generation, transmission, distribution and use of electricity in utility, industrial and commercial applications. Its portfolio ranges from light switches to robots, and from huge electrical transformers to control systems that manage entire power networks and factories. With 2009 revenues of $31.8 billion and income of $2.9 billion, you'd have to look long and hard to find a better infrastructure investment in the electric power industry.

Chloride is a highly regarded vendor of uninterruptible power solutions for commercial and industrial customers in Europe (78%), the Americas (10%) and Asia (12%). Chloride's solutions and services protect business critical systems and processes from the effects of poor power quality and power interruptions prevalent in most world economies, both in developed and developing countries. Its products range from battery back-up systems to diesel generators, flywheels and fuel cells, but at the end of the day Chloride's business is buying manufactured energy storage devices and integrating them into power systems that assure "Secure Power Always through leading technology and exceptional customer support." Chloride buys all its batteries from well-recognized manufacturers including Enersys, Yuasa, C&D, Hoppecke, Fiamm, Exide and others. It should be a fine acquisition for ABB and significantly extend that company's reach and depth.

The thing I found fascinating about ABB's purchase of Chloride is the fact that a systems integrator with a fraction of the assets, equity and annual revenue was sold for cash at a far higher value than the market attributes to the original equipment manufacturers. The following table provides summary financial metrics for Chloride, Enersys, Exide and C&D for the trailing 12 months.

Chloride Enersys Exide C&D
Service revenue $182.1

Product sales $308.2 $1,579.4 $2,685.8 $346.7
Gross profit
$208.8 $360.9 $538.1 $42.2
Net income (loss) $28.6 $87.3 ($31.6) ($21.3)

Current assets $189.3 $895.3 $1,042.8 $138.6
Total assts $451.7 $1,652.0 $1,956.2 $303.0
Current liabilities $154.0 $419.5 $613.8 $61.0
Total debt $271.4 $867.8 $1,608.2 $265.1
Stockholders equity $177.9 $779.9 $348.0 $38.0

Cash purchase price $1,264.5

Market capitalization
$1,154.6 $407.5 $23.7

When I study the table, I can't help but conclude that either ABB is overpaying for Chloride, or the market is seriously undervaluing Enersys, Exide and C&D. The best explanation comes from the work of Benjamin Graham who observed, "in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine." For the last couple years, the market has been showing its voting machine side. Over the next couple years I expect the weighing machine to emerge with a vengeance....MUCH MORE