Friday, February 20, 2015

Altergy Wins Battle, Leaves Field?

In August 2014, Altergy Systems, a provider of stationary fuel cell systems, won a legal battle with its former partner EnerSys, Inc. (ENS:  NYSE), going home with a $40 million check.  The two had had a supply and distribution agreement that had given EnerSys exclusive rights to sell Altergy’s fuel cell products in the telecom industry where EnerSys has a significant footprint.  The duo was aided by an FTC ruling shortly after Hurriane Katrina that all U.S. cellular sites should be equipped with backup power.  The deal apparently went bad quickly, landing the two in arbitration.

Since Altergy issued a press release to crow about its court room win, the company has been surprisingly quiet.  For a private company Altergy has a relatively well developed investor relations effort.  The company has raised tens of millions in capital to support product develop and its market entrance beginning in 2008.  Altergy made public some details about its financing activity in the early days, revealing that the company had raised $24 million in a private placement in 2006.   Since then there has been a few hints at raising additional capital through private placements.  Communications with investors probably seemed like a good thing.  However, now that the kitty has been stuffed with money from EnerSys, it seems investor relations are not so important.

EnerSys on the other hand has kept motoring on.  At the end of December 2014, even after paying Altergy the legal award, Enersys reported $278 million in the bank.  EnerSys is a consistent generator of cash, wringing $227.5 million in cash from operations in the twelve months ending December 2014.  That success is largely due to an operating margin in the low double digits.  Of course, EnerSys has considerable history in the motive power, storage and backup power markets.  It sales force has placed industrial batteries on all continents, delivering $2.5 billion in total sales in the last year.  Unfortunately, sales were lower than the year before as price increases failed to make up for reduced unit volumes.  The strengthening dollar has also worn away revenue.

Traders have fled ENS, leaving the stock of EnerSys 11.5% lower in price than a year ago.  Those who have invested in Altergy do not have the mobility that a publicly traded stock affords.  Despite the silence we doubt Altergy has left the fuel cell business.  The company may simply be facing the same economic and competitive pressures that have nipped away at EnerSys sales.

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.  


No comments: