Should You Get Charged Up About This IPO?

In my Cleantech Outlook for 2009, I highlighted A123 Systems as a top company to watch. The energy storage firm had filed a registration statement with the SEC, signifying that it was prepping for an initial public offering in the not-too-distant future.

Things were dicey at first, with the firm getting passed over by General Motors and its Chevy Volt plans. April, however, brought a key win with Chrysler for a line of electric-drive vehicles. A123 subsequently had no trouble raising $69 million from investors including General Electric (NYSE: GE  ) , ConocoPhillips (NYSE: COP  ) , and Qualcomm (Nasdaq: QCOM  ) .

On the grid storage side of the business, A123 has gone on to garner further interest from firms like Southern California Edison, which is looking to pursue a pair of smart grid projects with a group including Cisco Systems (Nasdaq: CSCO  ) , IBM (NYSE: IBM  ) , and SunPower (Nasdaq: SPWRA  ) (Nasdaq: SPWRB  ) .

A123's next hurdle was landing a loan guarantee from the Department of Energy, but the company's selection to build a new plant in Michigan seemed like a no-brainer to me. The firm won a $249 million grant in August. Having been given the government green light, and a slew of state incentives to boot, A123's expansion is moving forward. Hence the proposed IPO under the Nasdaq ticker "AONE," set for later this week.

The buzz is clearly building -- A123's estimated initial offering price was today increased from a range of $8 to $9.50 to a heartier $10 to $11.50. Let's take a look under the hood before that first day of trading really gets everyone's motor running.

Since it commercialized its first battery products in 2006, A123 has generated $154 million in product revenue. If you include R&D revenue, the total jumps to $188 million. Nearly 23% of that total revenue figure came in the first six months of this year, which conveys the heady growth being generated by this battery biz.

Adjusted for the expected offering of 25 million shares at a midpoint price of $10.75, here's what A123's core stats will look like:

Share Structure and Capitalization

Numbers

Shares Outstanding

96.8 million

Market Capitalization

$1,040.8 million

Cash and Equivalents

$362.6 million

Debt

$16.2 million

Enterprise Value

$694.4 million

Book Value

$419.9 million

Data from company filings.

A123 thus enters the public stage priced at more than twice book value, which is not unreasonable for a growth issue. The resulting enterprise value, while quite a bit lower than market cap due to the fat net cash pile, is still quite high relative to sales. Even taking lifetime total sales, we're looking at a ratio of 3.7:1.

To be remotely interested in A123 as an investment, I would need to see a clear path to several hundred million dollars in annual product revenue over the next, say, two to three years. If you're interested, I'm more than willing to explore that possibility in a subsequent article.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (15)

Comments from our Foolish Readers

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  • Report this Comment On September 22, 2009, at 5:12 PM, takingover wrote:

    Toby I would love to get more information on A123. Actually, I am also very interested in your thoughts on another IPO Shanda Games based in Shanghai.

    Thanks

  • Report this Comment On September 22, 2009, at 5:59 PM, joats5 wrote:

    An IPO in the clean energy battery biz is something I would certainly like to know more about! The IPO I've been watching and hoping for is Tesla Motors! I'd love to hear your thoughts on that!

  • Report this Comment On September 22, 2009, at 6:37 PM, memoandstitch wrote:

    I definitely would like to hear more about revenue outlook. Other IPOs that I'm interested in are GAME (Shanda's spin-off) and Colony financial.

  • Report this Comment On September 22, 2009, at 8:38 PM, MFCopernicus wrote:

    I would love to hear more about A123 and the future of batteries in cars.

  • Report this Comment On September 22, 2009, at 8:59 PM, Beecharmer13 wrote:

    I would love to hear more about this IPO; I'm also interested in your thoughts on Vitacost.com.

    Thank you.

  • Report this Comment On September 22, 2009, at 9:43 PM, ozzfan1317 wrote:

    Looking forward to hearing more and deeply interested in this IPO

  • Report this Comment On September 22, 2009, at 10:40 PM, JMaberry wrote:

    definitely interested, would love to hear more

  • Report this Comment On September 22, 2009, at 11:09 PM, sodapops wrote:

    Why can't we find the date for this IPO anywhere? All I can find is later this week.

  • Report this Comment On September 23, 2009, at 12:48 AM, drajjo wrote:

    I just checked the calendar in my scottrade account. It appears its coming out on 24th Sept.

  • Report this Comment On September 23, 2009, at 2:07 AM, StockEse wrote:

    Another vote for more info on AONE and GAME.

  • Report this Comment On September 23, 2009, at 9:26 AM, kccaz01 wrote:

    More on AONE please.

    What website shows IPO information?

  • Report this Comment On September 23, 2009, at 10:55 AM, mts4243369 wrote:

    Yeah, Let's hear some more!

  • Report this Comment On September 24, 2009, at 8:57 AM, expatriot08 wrote:

    sounds very interesting..

  • Report this Comment On October 22, 2009, at 4:50 PM, 11787HOT wrote:

    A123 (AONE) Batteries for hybrids, and Smartgrid

    energy comps. are into this comp.also Johnson Controls (JCI)another "Ion-Lithium Battery maker.

    They both shot up to $26.00 in a couple of days from $13.50. Play both or one. Buy ITRON Meter co.(ITRI),

    G.E.and ENERNOC(ENOC), MegaWattage storage Co. Last but not liest the Mine that produces the most " Ion- Lithium for the batteries, The best mining:

    PERGO Mines (NNM) in Chile, SA. I just read a 10 page article on all the "SmartGrid Comps." These are just a few mentioned in the article.

    You are going to make lots, lots and lots $$$. They are all Green and ripe for the taking. There will be several conferences in the near future with Al Gore,

    and many other CEO'S of utilities comps. on Green

    future investments. You are one lucky lot of people if you get to read my comments on this. God Bless.

    near future about solar ,Wind, energy and the utilities that will be profiting from "Smart Meters" ,Technology,

    Storage of power with wattage and Batteries.

  • Report this Comment On October 22, 2009, at 5:15 PM, 11787HOT wrote:

    Nadia K. Here again, The above info. many financial

    Advisors dont know about it.I bet Cramer of Mad Money hasnt yet read this article on The SmartGrid",

    He's got alot on his plate every day. He is not always

    familiar with all the companies he gets called on his show. or doesnt give too much info on them for lack of knowledge. I am into "Motley fool, and High Yield

    Investment letters and a few more. I have an online account with "TradeKing"Investment Firm.They are Great, only $5.00 a trade.

    You cant go wrong with that.you get to keep more money for yourself and for trading.

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