Friday, July 20, 2012

"A123 Surges on 2-Megawatt China Grid-Stabilization Order"

After not gaining much traction with yesterday's announcement, they decided to just... announce it again plus a 2 MW sale to China.

A123 Systems Inc. (AONE), a U.S. maker of lithium-ion batteries for electric cars, surged the most in a month after winning a contract to supply a 2-megawatt system to China’s Ray Power Systems Co. to help regulate grid frequency. [...]

"This is an application A123 has been chasing for some time and it’s good to see they’re making progress," said Michael Lew, a senior analyst at Needham & Co. in New York who has a hold on the stock.
First, it's interesting that you would have a "hold" on the stock in a company with bonds trading at 24 to yield over 50 percent.

Second, 2 MW is a puny order. I think it may only be a couple million in total revenue, with the profit margin naturally not being discussed. In the past they were putting out press releases for sales of 44 MW of grid stabilization. This reminds me of when the bulls on PV solar firm ENER were talking about that product being used for "solar powered Kindle covers" - which really meant that it had been sold as scrap.

Third, why does China place a teeny tiny order for 2 MW? Less than the output of one wind turbine? Starting with a small trial order, or planning to examine and knock off the technology?

Fourth, AONE increasingly shifts its attention to "ancillary" uses of batteries like grid stabilization. That might be a sign of defeat in the electric vehicle market.


Allan Folz said...

Any thoughts on CHK and the v. abrupt 2 day sell-off?

I saw the Reuters piece on Tuesday conjecturing the BoD changes could constitute a change of control, and a pay-out of $100M. Seemed like much ado about nothing. That amount is 1% of the market cap so inconsequential in the cost of a real take-over, and the BoD angle seems like ambulance chasing lawyers wishful thinking more than anything of merit. After a brief hiccup the stock price appeared to shrug it off as well.

But the last two days, selling-off over 10% on no other news and NG running up seems curious.

Finally, as I thought more about the change of control provisions, it seemed like paying off 1600 middle-managers $100M without them actually needing to be fired to collect the money made a sale more likely, not less. I'd think the rank & file would be very much in favor of a sell-out... you'll double my stock price AND pay me $5-20k cash AND I keep my job all for selling Aubrey down the river? Heck yeah, sign me up!

So I gulped and rounded out my preferred position. It helped that it goes ex-div in a week and a half. There was heavy volume in it today as well. Seems somebody's going to be really happy and somebody else is going to be really sad.

CP said...

What's your email address?

CP said...

Yeah, when it tanks my first suspicion is a hit piece by a journalism major.

I like your thought about the change of control incentive.

Allan Folz said...
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