A Barnburner of a Battery IPO

A few days ago, I asked whether investors should get charged up about the IPO of lithium-ion battery maker A123 Systems (Nasdaq: AONE  ) . Well, the market has spoken -- loudly.

On Thursday, the offering was boosted from 25 million to 27.5 million shares (plus 680,501 shares sold by existing stockholders), and priced at $13.50 per share. Investors piled on all day, pushing the share price up past $21 at one point.

So much for our preliminary share structure calculations. Based on the current price of $19.61, here's an update:

Share Structure and Capitalization

Numbers

Shares outstanding

98.2 million

Market capitalization

$1,925 million

Cash and equivalents

$457.7 million

Debt

$16.2 million

Enterprise value

$1,483.5 million

Book value

$515.1 million

Data from company filings.

Whoa, Nelly! Before the IPO, we were looking at a market cap of barely over $1 billion, and an enterprise value of less than $700 million. Now, A123 is priced at around 3.75 times book value, and its ratio of enterprise value to lifetime total sales has jumped to 7.9. Jeez, A123, leave some hype for Shanda Games (Nasdaq: GAME  ) and Select Medical (NYSE: SEM  ) , would you?

At around half its current valuation, I was cautiously optimistic that A123 could maybe meet the growth expectations baked into the cake, like Google (Nasdaq: GOOG  ) did back in the day (despite the disinterest of Fools like Bill Mann at the time). Now, I'm not nearly as sure. I'm going to take the weekend to ponder the growth outlook here, and I suggest anyone long or thinking about going long the stock do the same. That doesn't just mean taking the market size estimates being thrown around for 2015 and 2020 and extrapolating A123's market share from that.

I'll be back next week with my findings. In the meantime, take a moment to tell the rest of us what motivated you to either buy or avoid these shares in their first two days of trading in the comments section below.

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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 (4) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On September 25, 2009, at 4:36 PM, elephantinroom wrote:

    I think IPO's of companies who are in entirely new businesses / sectors that we don't have a good understanding of need to be treated differently. The standard math doesn't work. Just like the 'analysts' and so called experts underestimated Google, Apple (when they switched to Itunes/Iphones/Ipod business), it requires the retail investor to examine the company like a venture capitalist.

    Yes there are other companies in the battery space. But there must be a reason why this company has attracted the most conservative, but also the most high profile investors when they were still private - GE, P&G, Motorola, Northbridge, etc etc.. The fact is that A123 has figured out what most of the competition still has not - which is how to build reliable batteries at high yield at scale - and is the only US company to do so. They have the most professional, experienced, and COMPLETE management team.

    The applications are not just in cars. It's in the power grid / utility industry. This is why your traditional number crunching doesn't work. You have to use your intuition, and do proper research, and think like a venture capitalist - who have obviously decided to go long on A123.

  • Report this Comment On September 25, 2009, at 5:08 PM, dheatguy wrote:

    I agree with elephantinthe room. I'm a long-suffering investor in Altainano (ALTI) -- a very baby and badly-managed version of A123. (It was one of the few US advanced technology battery companies...) As such, I've watched this space daily for the past 3 years.

    While A123 has had an amazing IPO -- I suggest we don't get too hung up on fundamentals at this point. A123 is going to be very competitive in light transportation, municipal transportation (buses), and electric grid storage and stabilization. Everyone is focused on EVs and PEVs, but for the next few years, IMO the real opportunity is with the bus and grid biz. (BTW, that is also where ALTI is desperately trying to stake a claim...)

    Prosperous Investing and Wise Trading,

    Don

  • Report this Comment On September 26, 2009, at 5:07 AM, 60Chevy wrote:

    A123 is expanding into a vacuum. What will the market for energy storage look like in five years? How did refrigeration change the meat industry? A hundred years ago we had to eat the chicken the same day it was killed. That’s how we use electricity today, and most of it is wasted. America now eats a million chickens every hour. All made possible by refrigeration in our homes, supermarkets, trucks, and food processing plants. The energy storage systems developed and produced by A123 will be as ubiquitous as refrigerators. Every home, every car, every truck, every business, will have one. A million BTU in coal sells for $2.50. A million BTU in crude oil sells for $12. A million BTU in unleaded gasoline sells for $25, in the US at $3/gallon; in Europe it’s double that. With the ability to store energy in a small reasonably priced package everything changes: A BTU IS A BTU. A123 has crossed the tipping point for size and cost. It’s all growth from here on out.

  • Report this Comment On September 26, 2009, at 10:35 AM, NsecurityXchange wrote:

    To understand the excitement, one could check with two places that are still most familiar with automotive lithium battery applications: your local RC hobby shop and fire department.

    The curious thing is the cutting edge high powered battery solutions (quite above laptop levels) have been very actively tested in head to head competition in cars, submarines and airplanes for many years, albeit on a smaller scale. Priorities are well known: size, weight, cost, performance, run time, charge time and safety,

    Just like LiPo technology proved to be head and shoulders above NiCad, A123 patented "nanophoshate" tech has leapfrogged conventional LiPo.

    However, let's for the moment ignore the outright performance advantage, flat and level discharge curve, ability to be harmlessly discharged and overcharged dramatically above and below the spec, preference for hot temps and Shaolin like resilience to physical abuse.

    The best selling point for A123 is their temperature profile graph (flat at the bottom) overlaid on top of conventional LiPo battery. Nothing like words like "first explosion", "second explosion" and "metal fire" on the competing technology graph to help you sell your product. Would you really like to sit on top of 500lb of high powered LiPo batteries going 60 mph? And why would you, if they underperform.

    A quick search on youtube and internet in general for "LiPo fire" and "LiPo explosion" will give you a general idea. They blow up in charging, discharging, due to being unbalanced and due to physical damage. A simple wiring fault can burn your house down, literally.

    By comparison A123 commercially available batteries can be safely charged at rates of 10 times and more of the capacity, can be abused in both charge and discharge and can sustain physical damage without danger of fires.

    Main point being A123 is the undisputed commercially available battery tech champion... and they just got more money for R&D and production facilities than any other battery lab in the world.

    Considering everything else, the competition is far behind, unproven or underfunded.

    So, it comes down to a question of efficient and safe electric storage. If you believe in that market, you should believe in A123.

    The best commercially available alternative is not consumer ready, unless you severely handicap the performance.

    -IEC

    Insecurities And Exchange Commision

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