John Petersen
The first quarter was unkind to publicly traded companies in the energy
storage sector, which saw their stock prices fall by an average of
16.22% over the last three months. While the shares of Enersys (ENS)
and C&D Technologies (CHP)
posted gains of 12.8% and 3.2% respectively, all of the others in my
universe of 17 pure play energy storage companies traded down. The
following table summarizes first quarter performance and provides some
important valuation metrics.
The following table summarizes the portfolio performance a hypothetical
investor would have realized over the last three months if he
invested $1,000 in each company and the three broad market indexes on
December 31, 2009.
| Broad Market Indices | +4.89% |
| Cool Emerging Companies | -14.85% |
| Cool Sustainable Companies | -25.50% |
| Cheap Emerging Companies | -29.24% |
| Cheap Sustainable Companies | -6.65% |
| Chinese Battery Companies | -13.70% |
After publishing performance updates for a year and a half, I’ve
decided that quarterly snapshots don’t provide enough information to
show how my
tracking categories and companies have performed over time. In an
effort to make these summaries more useful to investors, I’m going to
introduce a new format that breaks the data down into more digestible
chunks. I
hope it helps.
Cool Emerging Companies
My Cool Emerging Companies category includes four companies that are
developing cool but objectively expensive energy storage technologies
that are not fully commercialized. The companies in this category are
Ener1 (HEV),
Valence Technology
(VLNC),
Altair Nanotechnologies (ALTI)
and Beacon Power (BCON).
These
four companies were down an average 14.85% in the first quarter
and have fallen an average of 36.80% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Cool Sustainable Companies
My Cool Sustainable Companies category includes three companies that
manufacture cool but objectively expensive energy storage devices and
generate substantial recurring revenue from product sales. The
companies in this category are A123 Systems (AONE),
Maxwell Technologies
(MXWL)
and Ultralife (ULBI).
These three companies were down an average 25.50% in the first quarter,
but have gained an average of 12.19% since November
14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Cheap Emerging Companies
My Cheap Emerging Companies category includes two companies that are
developing effective but objectively cheap energy storage technologies
that are not fully commercialized. The companies in this category are
Axion Power International (AXPW.OB)
and ZBB Energy (ZBB).
These two companies were down an average 29.40% in the first quarter
and have fallen an average of 12.76% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Cheap Sustainable Companies
My Cheap Sustainable Companies category includes four companies that
manufacture effective but objectively cheap energy storage devices and
generate substantial recurring revenue from product sales. The
companies in this category are Enersys (ENS),
Exide Technologies
(XIDE)
C&D Technologies (CHP) and
Active Power (ACPW).
These four companies were down an average 6.65% in the first quarter,
but have gained an average of 103.72% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Chinese Companies
My Chinese Companies category includes four companies that
manufacture a variety of energy storage devices including lead-acid,
NiMH and lithium-ion batteries, and generate substantial recurring
revenue from product sales. The companies in this category are Advanced
Battery Technology (ABAT),
China BAK Batteries (CBAK),
China Ritar Power (CRTP)
and Hong Kong Highpower (HPJ).
These four
companies were down an average 13.70% in the first quarter, but
have gained an average of 80.28% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Murky Crystal Ball
Since July of 2008 I’ve consistently told readers that energy storage
is an essential enabling technology for the cleantech revolution and
has immense potential in transportation, wind and solar power and the
smart grid. I’ve also consistently cautioned that the prevailing
valuation metrics in the cool technology groups were far less
attractive than the prevailing valuation metrics in the cheap
technology groups. Since I believe Benjamin Graham was right when he
said, “In the short run, the market
acts like a voting machine, but in the long run it works like a
weighing machine,” I’ve consistently predicted that the cool
technology groups were likely to stagnate or underperform on a
go-forward basis while the cheap technology groups were likely to
outperform. I think the comparative price performance charts say it
all, particularly when you realize that China Ritar Power (CRTP)
makes lead-acid batteries, instead of the lithium-ion and NiMH
batteries made by the other Chinese companies.
The biggest challenge for energy storage investors is separating
business reality from press release hype and establishing a realistic
mental timeline
for expected changes in the energy storage sector. Late last month, Lux Research
published a new industry report titled “Emerging Technologies Power a
$44 Billion Opportunity for Transportation and Grid.” Some of the more
intriguing conclusions I gleaned
from my copy of the report are:
vehicles, and hybrid trains will represent a $0.4 billion opportunity
over the next five years for supercapacitors, and lithium-ion and
molten salt batteries;
will grow by about $6.8 billion over the next
five years, including:
- $4.5 billion in battery sales for e-bikes and e-scooters
(predominantly lead-acid); - $1.2 billion in battery sales for plug in vehicles
(predominantly lithium-ion) - $0.9 billion in battery sales for stop-start micro hybrids
(exclusively lead-acid); - $0.5 billion in battery sales for HEVs (predominantly NiMH);
$1 billion per year, led by applications like wind and solar power
integration
($810 million) and frequency regulation ($140 million); and
lead-acid battery sales, lead-acid will remain the king of energy
storage for the foreseeable future.
The futurist in me likes to look ten; twenty or even thirty years down
the road and imagine what the world might be like. The realist in me
knows long-term forecasts are always wrong because technological change
is inherently unpredictable and the rate of change has been
accelerating for decades. Therefore the investor in me tries very hard
to concentrate on where the growth will occur over the next five years,
and where market perceptions are out of synch with reality.
The combined market capitalization of the lithium-ion and NiMH battery
companies I track is about $2.75 billion. In comparison, the combined
market capitalization of the lead-acid battery companies I track is
about $1.8 billion. When a highly regarded firm like Lux reports that
over 75% of the expected revenue growth during the next five years will
go to companies that make lead-acid batteries, I have to believe the
market’s weighing machine mechanisms will significantly increase the
valuation of the cheap technology companies while the cool technology
companies tread water or decline. So far the theory seems to be holding
up pretty well.
The following table identifies six pure play energy storage companies
that I’d classify as speculative. For each company I’ve taken the raw
financial data from their December 31, 2009 SEC reports, eliminated
derivative accounting impacts that make no sense in micro-cap companies
and adjusted for stock conversion and financing transactions reported
since year end.
If you focus on the intangible premium column, you’ll see a huge
variation among the six companies. At the low end of the spectrum ZBB
Energy’s (ZBB)
market capitalization is only $6.8 million more than its tangible net
worth. In my experience that’s a low premium for a speculative stock.
At the other end of the scale, Valence Technologies (VLNC)
and Ener1 (HEV)
have intangible premiums of $185.7 million and $536.5 million,
respectively. In my experience, both premiums are unsustainably high.
The other three companies are clustered in the $40 to $70 million
range, which is low compared to historical norms, but probably not
unreasonable under current economic conditions.
Disclosure: Author is a former
director of Axion Power International (AXPW.OB)
and holds a substantial long position in its stock.