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John Nelson
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I am a buy side analyst who will be using this sight as a source of alternative/non-Wall Street investment perspectives. I discovered the sight while I was out of work. Now that I am employed again, I will not be posting investment ideas anymore.
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  • A123 IPO Analysis
    I have been doing some work on A123 in preparation for the IPO and thought I would share my conclusions.  First, there are some real experts on the battery sector on this forum, so I won't even attempt to add any industry insights here.  Rather, let me say that I am very bullish on the battery industry over the next decade and have been looking for a way to participate in my portfolio.

    To cut to the chase, I am planning to buy shares in AONE if I can get them under $9.  I probably won't be able to get shares at the offering price and I think there is a good chance I won't get a shot at $9 given the strong market environment and the cash coming back into the markets.

    The reason I am hesitant to pay more is that this is a riskier investment case than I originally thought and the risks I was expecting are meaningful.  I think the loss of the Volt contract is a big deal.  GM is able to perform much deeper analysis on the merits of A123's product than I can do, and they chose LG Chem.  The reasons for that could be fixable (example, they were worried that there would be capacity constraints) or it could be more substantial.  I don't know, but it certainly raises the risk profile since they have to win contracts in order for me to make money.  Second, this is a one-trick-pony in the sense that they offer a specific technology.  If their lithium phosphate chemistry doesn't gain traction for any reason, the stock is in trouble.  There is not a profitable existing business to provide any downside protection unlike several other battery companies.  As such, the chances that AONE ends up a zero is higher than it is for most companies in my opinion.  Third, I don't like the litigation overhang from Hydro-Quebec and UT.  If these lawsuits go poorly for AONE, it is likely to push back breakeven, which really hurts my valuation.

    Despite that, I agree with some of the other writers on this site, that the battery industry growth is likely to be big and broad enough to lift a lot of technological boats.  The upside for AONE is massive and worth some risk of course.  I think the stock has an intrinsic valuation of just under $10 per share, and could easily trade to $12 or more on sentiment.  That $10 intrinsic value requires revenue of $525m by 2012 and break even operating margins by 2011.  I am assuming 5% margins in 2012 and 10% thereafter.  Sharecount is assumed to be 111 million.

    Given the risk profile, growth potential, and my industry stance, I would like to buy the stock below $9.  I hope I get the chance.

    Disclosures: I have read through the S1 but have not seen the roadshow and don't have a way to evaluate the quality of management.  I like this sector, but my expertise is the financial sector, not industrials.  I am going to call my broker, but am very unlikely to get shares at the offer price.
    Tags: AONEQ, A123
    Sep 22 12:04 PM | Link | Comment!
  • Greenhill: Some support for my thesis
    The announcement today that Greenhill is acting as financial advisor to BJ Services on their announced sale to Baker Hughes is a good sign for two reasons.  First, it supports my view that Greenhill is entering the very top tier of M&A advisors, and second, that their headhunting frenzy is likely to pay off. 

    When it was announced that Greenhill was the lead advisor to Roche in its acquisition of Genentech, it was a bombshell.  My view is that over the next few years, we will grow accustomed to seeing the likes of Goldman Sachs on one side of the table and Greenhill on the other.  Greenhill has the business model, talent, and reputation to make that final step.  So this deal was simply a confirming datapoint for my thesis.  Only time will tell for sure.

    On the second point, I am assuming that BJ Services was advised by Managing Directors from Greenhill's new Houston office.  I have not confirmed that, but I think it is a safe guess.  Greenhill has been very aggressively adding MDs and offices as it picked off talent from other struggling firms.  I think the flood of resumes is probably slowing as Wall Street stabilizes, and in several cases, returned TARP money.  But the question remains: did Greenhill make good hires?  Again, only time will tell, but I think a good-sized lead advisor role from their new Houston MDs during a slow M&A environment is a good sign.

    Disclosures: I currently own Greehill shares based on my thesis that investors will pay just over $100 per share at the end of 2010 because it will be viewed as a high quality way to get pure-play exposure to the M&A cycle as it reaccelerates.  As such, I am willing to sell my shares in the near term at around $90.  I bought the shares at $57.

    Tags: GHL
    Aug 31 12:43 PM | Link | Comment!
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