Acorn Energy (NASDAQ:ACFN) is an energy technology company with four business segments. Its strategy is well articulated by its CEO, John Moore, in a presentation entitled "The Five Heresies of Energy" which is available on the ACFN website and is a must-read for energy investors. ACFN seeks to leverage advances in information and other technology to improve the efficiency of the energy infrastructure. This infrastructure is an immense, capital intensive network of electric generating stations, transmission and distribution systems, gas and oil pipelines and drilling equipment. The quantities of energy processed are so enormous that even relatively small percentage improvements in efficiency yield enormous value.
ACFN has four operating segments. Some of these, ACFN does not own 100% because there are minority interests. The largest is CoaLogix which provides catalyst regenerating technology for coal fired power plants. It has been growing its sales rapidly and would benefit from pending EPA air pollution control regulations. Even without these new regulations, CoaLogix has established itself as a reliable source for the electric utility industry in the United States and is also planning on expanding international operations. If not now, than within a quarter or two, CoaLogix will likely reach the point at which its value alone is equal to or greater than the ACFN market cap of roughly $70 million.
In 2007, ACFN sold its Comverge (NASDAQ:COMV) segment in a public offering and, if the same multiple of trailing revenue could be obtained for ACFN's interest in CoaLogix, the receipts would already be more than the market cap of ACFN. CoaLogix may not obtain the same multiple but, as trailing revenue grows from quarter to quarter, it will become easier and easier to value CoaLogix at at least the $70 million market cap of ACFN. At this point, an investor would be essentially getting the other three segments for free.
Each of these other segments has enormous potential for growth and is well on the way to broad market acceptance. GridSense provides remote monitoring and control systems which allow electric utilities to operate transmission and distribution facilities more efficiently. An important opportunity in this area is transformer monitoring. The United States electric grid has a very large number of old transformers; the monitoring systems GridSense has developed permit utilities to identify problems and areas where changes in retail consumption are putting pressure on transformers. In this regard, plug in hybrids and all electric cars charged at users' homes are already raising concerns. GridSense has just received a very large order from a major utility and should be able to penetrate this growing market very effectively.
The second of the three, DSIT, provides underwater sonar and acoustic security systems and addresses a market which includes both governmental entities and private companies. Concerns about the security of defense facilities and equipment, as well as underwater pipelines and power lines, are creating an important demand for DSIT's products.
In some ways the most exciting prospect is the third of these segments, US Seismic Systems, Inc. (USSI) (ACFN owns more than 80% of USSI). USSI provides oil and gas fiber optic monitoring systems which will permit greater efficiency and accuracy in the oil and gas drilling process. They offer the potential for drillers to obtain much higher yield from wells. These systems also permit the detection of leaks and may be a very good answer to some of the environmental concerns expressed about shale fracking. USSI has just received a large order and is on the verge of breaking out into wider industry acceptance and adoption.
ACFN has traded at prices considerably higher than its Monday close of $4.14. Problems with Coreworx, a segment which has been divested and is no longer an issue, have driven the price down. I think that this has created a buying opportunity for investors willing to put some money at risk. John Moore's strategy of leveraging technology improvements to engineer products which increase the efficiency of finding, obtaining, transporting, and using energy is a sound one.
Because of the scale of the energy infrastructure system in the United States, and indeed the world, the market addressed by each of these business segments is enormous. On the other hand, each business segment produces solutions which have relatively low costs in comparison with the scale of spending and the value of the energy throughput which characterizes the infrastructure system and the energy companies which own and operate it. This stock is a strong long for me and an attractive position for investors willing to be reasonably patient.
Disclosure: I am long ACFN.