John Petersen
With only a couple trading days left
in 2009, this is as good a time as any for a performance review. The predictions
I
made at this time last year were pretty solid with an 80%
accuracy rate on price direction. For the year, a $1,000 investment in
each of my green star companies would have yielded a portfolio
appreciation of 67%, which handily beat the broader market indices.
That being said, my star and caution ratings were a good deal less
prescient because I seriously underestimated the potential of both
Maxwell Technologies (MXWL)
and
Active Power (ACPW),
which appreciated by over 200%.
The following table identifies my current universe of pure play energy
storage companies, reiterates my outlook at the beginning of this year,
summarizes their performance during 2009 and offers my assessment of
likely price performance during 2010. In the table, a single star
signifies a neutral position.
Valence Technologies (VLNC)
scares
the hell out of me. It had a working capital deficit of ($10.8)
million at September 30, 2009 and its stockholders were under water to
the tune of ($74.7) million. Valence is currently surviving on life
support financing from the open market re-sale of 650,000 shares every
two weeks. The financing is enough to keep the doors open, but leaves
little or no room to build a business. My experience with companies in
comparable financial straits has not been good.
Ener1 (HEV)
is
in a better position than Valence, but not much. It had $2.4 million
in working capital at September 30, 2009 and then raised $20 million by
selling stock to an equipment vendor, so short-term operating cash does
not seem to be a problem. Nevertheless, Ener1′s September 30th balance
sheet includes a $13.6 million investment that allowed Th!nk Motors to
emerge from the Norwegian equivalent of a bankruptcy reorganization;
$13.7 million of intangible assets; and $50.4 million in goodwill. Even
after the $20 million cash infusion, Ener1 had a net tangible book
value of roughly $0.54 per share before fourth quarter losses. Since
Ener1 needs to come up with $118.5 million in matching funds for an ARRA
battery
manufacturing grant that was awarded in August and it also
needs an indeterminate amount of working capital, I can’t help but
believe that the company will face substantial financial challenges
over the next few months. Management may be able to pull off a miracle,
but given market conditions I would expect any major financing to go
off at a big discount to the current price.
I remain quite bullish on established battery manufacturers with a
global presence that trade for mere pennies on the dollar of annual
sales including C&D Technologies (CHP) where
the market cap equals 11% of sales, Exide Technologies (XIDE)
where the market cap equals 21% of sales, Ultralife (ULBI)
where
the market cap equals 43% of sales and Enersys (ENS)
where the market cap equals 67% of sales. All these companies have been
actively restructuring operations to improve profitability and when the
fruits of those efforts become more obvious, I expect significant
upside potential across the board. Since I don’t fully understand the
business culture or the market, I’m a bit more cautious when it comes
to the Chinese companies.
My two favorite speculations are ZBB Energy (ZBB),
which
has an ultra-low market capitalization for an exchange listed
public company, and Axion Power International (AXPW.OB).
I’m
far from objective when it comes to Axion because I poured four
years of my life and a large chunk of my personal fortune into the
company. However, Axion’s tangible accomplishments since I stepped out
of an active role are truly impressive. Now that the pain of a recent
down
round financing is largely history and Axion’s short- to
medium-term financial future is secure, it’s all up to the PbC battery.
It will be fascinating to see whether my predictions can be generally
right for another year. I’ll revisit this list at least quarterly over
the next year and either gloat or eat crow as appropriate. In the
meantime I would like to wish everyone a Happy New Year and a
prosperous 2010. It should be a fascinating year for the energy storage
sector.
Disclosure: Author is a former
director of Axion Power International (AXPW.OB)
and
holds a large long position in its stock. He also holds small long
positions in Exide Technologies (XIDE),
C&D Technologies (CHP),
Active Power (ACPW)
and
ZBB Energy (ZBB).