Seeking Alpha
Profile| Send Message|
( followers)  

We can’t help but like EnerSys (NYSE:ENS). EnerSys does not make batteries for starting cars. This a company that has a strategy and is sticking to it. As a large manufacturer of lead acid batteries, it would be so easy to expand into more sectors such as the car business. Recent results seem to verify the strategy as a good one, if not an exciting one.

EnerSys is a world leader as a manufacturer and distributor of reserve power and motive power batteries, chargers, power equipment, and battery accessories. Motive power batteries are utilized in electric fork trucks and other commercial electric powered vehicles. Reserve power batteries are used in the telecommunications and utility industries, uninterruptible power supplies, and numerous applications requiring standby power.

Growth

Net sales for the first quarter of fiscal 2012 were $569.2 million, an increase of 31% from the prior year first quarter net sales of $435.0 million. The 31% increase was the result of a 16% increase in organic volume, 3% increase due to pricing, 10% increase from foreign currency translation impact and 2% increase from acquisitions.

The majority of sales are split between the Americas and Europe, with 10% of sales going to Asia.

Enersys has managed to maintain positive net earnings, even in the recession years when the company had sharply reduced revenue.

FY2011

FY2010

FY2009

FY2008

FY2007

Net sales (millions)

$1,964

$1,579

$1,972

$2,026

$1,504

Gross profit

23%

23%

21%

19%

21%

Net Earnings

6%

4%

4%

3%

3%

Background

EnerSys and its predecessor companies have been manufacturers of industrial batteries for more than 100 years. Morgan Stanley Capital Partners teamed with the management of Yuasa, Inc. in late 2000 to acquire from Yuasa Corporation (Japan), its reserve power and motive power battery businesses in North and South America. On January 1, 2001, the name was changed to EnerSys.

Today, the reserve power batteries are marketed and sold principally under the ABSL, ABSL Power, ABSL Space, ArmaSafePlus, Cyclon, DataSafe, Genesis, Hawker, Odyssey, Oerlikon Battery, PowerSafe and SuperSafe brands. Motive power batteries are marketed and sold principally under the Douglas Battery, Express, Fiamm Motive Power, General Battery, Hawker and Ironclad brands. They also manufacture and sell related DC power products including chargers, electronic power equipment and a wide variety of battery accessories.

In 2004, EnerSys completed an initial public offering. It has expanded through internal growth and freqeunt acquisitions. During fiscal years 2003 through 2009, ENS acquired twelve battery businesses around the globe. During fiscal 2010, ENS made three acquisitions, the most significant of which was the acquisition of the industrial battery businesses of the Swiss company Accu Holding AG, which included the acquisition of the stock of OEB Traction Batteries and the operating assets and liabilities of Oerlikon Stationery Batteries and its Swedish sales subsidiary. During fiscal 2011, ENS made three acquisitions, the most significant of which was the acquisition of a lithium-ion battery business, ABSL Power Solutions Ltd. (ABSL). It also expanded thin-plate pure-lead technology (TPPL) capacity at facilities in Warrensburg, MO and Newport, UK.

Research & Development

The company does not break out R&D expenditures. It seems more focused on acquiring new products. We would like to see where it is spending research dollars, but suspect the amount being spent is limited. The company appears to be more focused on acquisition, marketing and sales and manufacturing than on internal development of new product technologies.

Competition

In Industrial Energy, North American and European competitors include Exide (XIDE), Johnson Controls (NYSE:JCI), and East Penn Mfg.

Cost Control

In the FY2009, 2010 recession years, and recently, ENS showed excellent OPEX cost control. From FY2007 to now, net income as a percentage of sales has increased from 3% to 6%.

Growth and Profit Assumptions

As we cannot see any factor that would change the dynamics of this sector for the next few years, we feel that assuming growth for the next several years will approximate the growth from the last five fiscal years is as reasonable a projection as any other. Looking at the period from FY2007 to FY2011, which includes two good growth years and two pretty poor years, the average revenue CAGR was 6.7 percent.

Recently, the company has managed to move net profits up to the six percent range, even while digesting several acquisions. We feel that a long-term estimate of five percent is prudent as a long-term projection, with some room for upside with a healthy economy.

Risk Assessment: Medium

On the positive side the company has a fairly well diversified revenue stream, both across product lines and geographic areas. The management has shown an ability to generate net profits in good years and bad, seek out and absorb several acquisitions without discruption, and deal with fluctuating lead prices. We don’t see any disruptive trends on the near horizon.

Other negative side, many companies are working on improvements to battery technology, although we don’t see an imminent threat for these applications. Leaner and price aggressive companies from China could have a negative effect on pricing. Profitability is somewhat exposed to lead pricing. Finally the revenue stream is quite exposed to general economic health in the Americas and Europe.

Overall we rate EnerSys` risk level as medium.

VineSecurityJournal.com’s Proprietary Pricing Model

We assess stocks primarily based on their fundamental value. We estimate the revenue and earnings to be generated by a company over the next ten years. We look at the risk involved in the business, look at the assets and liabilities, and we discount the value of the future earnings according to risk level. For companies with medium to high risk levels, we discount the value of future earnings more aggressively. Finally, we compare the value of those future earnings to the stock price. Are the shares “on-sale” – or are they expensive?

Conclusion – Buy

Our recommendation is to buy given a target price of $26. Enersys is not an exciting investment, but the management has shown a consistent ability to stay focussed on a strategy, hunt down acquisitions without disruption, and to generate profits under a wide range of conditions. With a healthy economy we feel our growth assumptions could be underestimated. We feel the stock price has already been discounted for a lackluster economy and perhaps the general issues with many poor battery sector performers.

Source: EnerSys Drives Profits in Good Years and Bad