Friday, October 02, 2009

Get the Light Out

Creating efficiency in the use of energy is so important in my view that I have taken the liberty of turning it into a new investment sector. Orion Energy Systems (OESX: Nasdaq) mentioned in the last post “Light on Demand Destruction” would be included in the efficiency sector.

Comverge, Inc. (COMV: Nasdaq) is another emerging player in my so-called efficiency sector. The company helps utilities manage demand loads between peak and base power generating capacity and provides electricity management services to residential business, commercial and industrial customers. Sales have been ramping over the last couple of years, reaching $82.1 million in the twelve-months ending June 2009.

Comverge is not yet profitable on an annual basis, but has management to report profits in its seasonally strongest fourth quarters 2008 and 2007 when sales exceeded $30.0 in each quarter. Analysts are expecting similar performance in the last months of 2009.

The company got a boost from California regulators that approved its 4-year, 40 megawatt Virtual Peaking Capacity contract with Southern California Edison (SCE). Comverge has been engaged to build and operate a demand response system to help secure electricity reliability during periods of peak demand. SCE has 285,000 commercial and industrial customers in 50,000 square miles of service area in central, coastal and Southern California, making it the largest electric utility in California.

Such arrangements are expected to become more commonplace as utilities get the squeeze from rising fuel costs that are not covered by increased rates and environmental regulations require a switch to costly renewable fuels. Comverge has over 3,300 MW under management already and that number is expected to rise.

Comverge has nominal debt with a debt-to-equity ratio of 0.65. With $55.3 million in cash on its balance sheet, resources are more than adequate to support operations through to the breakeven point. Cash flow turned positive in the first six months of 2009, taking some pressure off the balance sheet.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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