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Wind Energy Market
Its Power Systems Offerings are designed to address the
burgeoning wind energy market, filling the needs of capacity constrained assets
and providing more reliable, secure and efficient transmission. Edison Electric
Institute anticipates that investments in the transmission grid will increase
to $10.2 billion by 2010. Worldwide, more than $37 billion was invested on wind
power equipment in 2007 alone. Global wind power capacity is expected to double
by 2011.
AMSC addresses the wind energy market by providing
electrical systems, grid interconnection, development contracts, licensed designs
and consulting services. It is currently designing systems for, or licensing
wind energy systems to customers in China, India and other growth areas around
the world. In 2007, wind power capacity in China grew at a 132% clip.
Power Grid Infrastructure Market
AMSC's HTS wire used in superconductor power cables
increase the thermal limit of existing or new corridors. Today, power cables
are made primarily using copper wires. AMSC's HTS wire is able to carry
150 times the electrical current of comparably sized copper wire and conduct up
to 10 times the current. It also offers other efficiencies. Traditional copper
cable systems heat up due to the electrical resistance of copper, causing
electrical losses. It is estimated that, on average 8% of electricity produced
at generation sites is lost due to resistance in the power grid. HTS materials
carry direct current (DC) with 100% efficiency and alternating current (AC)
with close to 100% efficiency. So AMSC's HTS power cables lose less power
and have not energy losses due to resistive heating.
The bottom line, in our opinion, is that AMSC is
positioned to be a technology leader in providing transmission solutions to two
critical areas of our future energy and electricity growth markets - wind
energy, and the power grid.
As we mentioned above, the stock has been sold off of
late, and this is due to widening losses - despite demonstrating solid
top line growth. We think that most recent quarter's results demonstrates
that the company is moving in the right direction in terms of margin expansion,
which is obviously critical to getting to profitability, while demand for its
products is stronger than ever. As of the most recent quarter end, AMSC had a
backlog of $634 million.
Recent News
·
August 6 - licensed wind turbine design
to Turkish Model Enerji Ltd. which will begin mass production of the 1.65MW
turbine in late 2009. In addition, AMSC will receive a royalty payment for the
first 425 turbines (the stock traded up to $31.31 on the news).
·
August 5 - shares sold off (down $4.75
to $31.32) on reports of a wider than expected Q1 loss which included a
non-cash charge of $2.4 million ($0.06 per share) for a mark-to-market
adjustment on an outstanding warrant. Expectations were for a loss of $0.06 per
share, so the company would have lost $0.03 more than expected in any case,
backing out the non-cash charge. Also, it increased its FY2008 guidance of a
loss to a range of $0.30 to $0.35 per share - despite increasing total
sales guidance.
- Recorded
Q1 revenue of $39.8 million, up 101% on a Y/Y basis.
- Gross
margin increased to 29.2% for the quarter, compared to 18.1% for the Q1 of the
prior year
- Forecasting
EBITDAS for FY 2008 in the range of $7 to $10 million
- Increase
revenue guidance for FY 2008 to a range of $175 million to $185 million
·
July 29 - Initiating testing of HTS
degaussing system with U.S. Navy. Degaussing systems containing multiple tons
of copper wire are utilized in most naval ships to cloak their magnetic
signature. AMSC's system is significantly lighter and less expensive to
install than conventional copper-based degaussing coils.
·
July 1 - Announced multiple orders for
Static VAR Compensator solution: Texas-based natural gas utility; recycler in
Western U.S.; and a distributed independent electrical generator.
·
June 10 - Won $450 million wind energy
contract to supply electrical components for wind turbines in China.
Our Assessment
At $24.26, the stock is trading at a 7.89x P/S (ttm)
multiple, which is typically too expensive for us to get excited about. But
there is just so much demand and growth, we think, built in to the AMSC story
that we can accept a higher multiple like this, at least for another four
quarters or so. The company recently raised its FY 2008 top-line revenue
guidance to a range of $175 to $185 million. We used $180 million for our
analysis, and forecast that, at a 7.5x P/S multiple, the high end of our
trading range would be about $31, which is about a 30% increase from current
levels.
Keep in mind, that heading into the most recent quarterly
report, the stock was trading pretty comfortably in the mid 30s. We think that
with a few more contract announcements like they have made in the past
couple months, the Street will recalibrate its expectations for the company and
the stock could easily move back into the $30 territory. In the meanwhile, we
think the stock looks extremely attractive for accumulation in the current
market weakness. There are just so many secular trends that are driving growth
in the power grid and wind energy sector that a technology leader like AMSC
should benefit. We are including it in our Clean Tech Index at current levels.
Disclosure Note: SCPEditor is LONG AMSC for its Clean
Tech Index as of this morning.
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