This is a client presentation from 2006. The challenge was to find a publicly traded company whose products were based on novel materials, preferably nanotech, that was in the Alternative Energy space, preferably Solar. It was to be bought and held for 3 years, and there was no risk management (options) available. While the capital was patient, they really did want to see returns in 6 months.
This stock was selected in June 2006 at $9. As of today (10/22/09) it's $31.
The analysis I used began with understanding the available scientific scopes for nanotech solar materials, then performing both traditional financial and novel social analysis.
At the time, I found nothing undervalued -- particularly to the point it would be a 3 year buy-and-hold. I expanded the scientific realm to include all novel materials in the alternative energy field in order to find this home run.
1. [ This is an industry and company
American
analysis. Although the age of the
data make this presentation obsolete,
Superconductor
the company name is obscured out
of consideration for the former client. ]
Jessica Margolin
Margolin Consulting
Trends in Technology Investing 1
2. Breakthrough Issues …
Global Warming Effects Fuel Prices Public Policy
Socially Responsible
Investment
Source: The Statistical Review of World Energy 2005, BP Website, June, 2005
2
3. Breakthrough Issues …
Global Warming Effects Fuel Prices Public Policy
Socially Responsible
Investment …Need Breakthrough Technology
Cleaner Energy Sources
Lower Use through Greater Efficiency
Reliable Distribution
3
4. But Advances in Materials => Risks
Political Risks
Incentivization
Regulation
Market Resistance (NIMBY)
Competitive Risks
Competing Technologies
Competing for Re-Aligned Markets
Technology Development Risks
Might not work
Might be leapfrogged
Business Management Risks
Research Lab to ROI Production: People & Processes
Opportunistic Employees
4
5. But Advances in Materials => Risks
Political Risks
Incentivization
Regulation
Market Resistance (NIMBY)
Competitive Risks
Competing Technologies
Competing for Re-Aligned Markets
5
6. Risky to Choose Power Generation
Oil Renewables
Solar
Natural Gas
Wind, Wave
Coal Mini-Hydro
Nuclear Energy Hydrogen
Geothermal
Hydroelectricity Landfill Gas
Waste Incineration
Biomass
Political Risks
Incentivization
Market Resistance (NIMBY)
Competitive Risks
Competing Technologies
Competing for Re-Aligned Markets
6
7. … Less Risky Choice: Transmission
Transmission &
Distribution
7
8. CapEx for Transmission Market
Almost $10 trillion of the total $16
trillion of capital needed in the
energy industry will be for the
power sector.
OECD countries will need to invest $4
trillion in their power sectors, half of it for
transmission and distribution grids.
Replacement of old power plants will $0.8 Trillion
account for much of the investment in
US + Canada T&D
power generation in those countries, since
more than a third of today’s capacity is
likely to be retired over the next thirty
years.
More than 40% of OECD electricity
investment will occur in the United
States and Canada, which will remain
the largest electricity market in the
world. Despite the relative maturity of
the system, its investment requirements
will also be larger than in any region
except China.
Source (Text): OECD/ IEA; World Energy Investment Outlook, 2003 Insights
Source (Image), edited: RBC Capital Markets, Alternative Energy, Myth or Reality – A Public Market
Perspective European Energy Venture Fair 2004. 8
9. Manage Regulatory Risk
• Contribute to Policy Regulation
• Have Relationships with Agencies
• Technology considered Nationally Strategic
9
10. But Advances in Materials => Risks
Technology Development Risks
Might not work
Might be leapfrogged
Business Management Risks
Research Lab to ROI Production: People & Processes
Opportunistic Employees
10
11. Manage Development Risks
• Monitor Technology
• High Barriers to Entry
• High Risk / Low Feedback Culture => Methodical
• Reputation Transparency => Integrity
• Additional Competencies (Service, Software)
Technology Development Risks
Might not work
Might be leapfrogged
Business Management Risks
Research Lab to ROI Production: People & Processes
Opportunistic Employees
11
12. Investment Strategy
Fundamentally Novel Advanced Materials Technology
Secure Demand: Energy Issues
Leverageable Across Many Product Applications with
Big Markets
Longterm Buy: Hold for 3-5 years
Preferred:
Returns sooner rather than later
Risks managed as well as possible
12
13. Investment Strategy
Superconductivity
High Temperature: Type 2
What is it?
• Region where resistence goes to
zero. Believed to be because of
Cooper pairs. (electrons generating
phonons that keep them together)
• Type 1 Superconductors are low
temperature, and are completely
superconducting (Hc1(T))
• Type 2 Superconductors allow some
penetration of magnetic field, so
resistance isn’t truly zero.
Performance depends on how well
this penetration is pinned. “High”
means Liquid Nitrogen temps, 77K.
13
Source (Image): Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
14. High Temperature Superconducting Wire
Power Quality Alternative Energy (Wind)
National Security
Transportation
High Tc Wire
Motors
Source: Semiconductor.org
14
15. USA Universe
[ still under NDA ] and GE Intermagnetics claims
Energy Receive Order for superconductor performance
Two D-VAR(R) Systems from milestone
City of Detroit Public Lighting In the race to develop commercially
viable superconductor wire technology,
Department the parent of SuperPower Inc.
D-VAR installation expected to save announced on Wednesday that the
City of Detroit $10 million annually Latham company had set a new world
in operating expenses. 5/10/06 record for performance.
5/23/06
[ still under NDA ] Wins Award
for 'Technology in the Intermagnetics looks
Service of Science' from IEEE
Spectrum and EE Times to sell SuperPower
New Breakthrough Product Receives subsidiary
Third Major Award in Past Six Intermagnetics General Corp. is now
Months seeking a possible sale or spin-off of its
SAN JOSE, Calif., 4/05/06 energy technology division as it focuses
more on its medical products
businesses. 3/01/06
15
18. American Superconductor (AMSC)
SuperMachines [ ] Wires Power Electric Systems
$3.7B growing to $6.9B in Yr10 $10B Cu Market PowerModule converters (PM1000)
• Industrial motors $1 billion, • to SuperMachines • D-VAR (Dynamic-VAR) $200-250
Mature, growing 2-4% annually • to PES MM market growing at 4% annually
• Utility Generators 1.6 Billion, • to OEM for cable • D-SMES (Superconductor Magnetic
Refurb, growing 2-4% annually • to OEM for Machines Energy Storage)
• Small Generators 0.4 Billion, - Maglev Train • PQ-IVR (Power Quality - Industrial
growing 2-4% annually Voltage Restorer)
- Mag Separators
• Electric Ship motors $450
million/yr, growing at up to 20%
for next 10 years due to
transition to electric motors
18
19. Superconducting Wire
Cables
HTS vs. Copper:
Much higher power throughput
Reduces grid congestion
Source: AMSC presentation U.S. Department of Energy 2005 Annual Superconductivity Peer Review
19
20. Superconducting Wire
Magnets
HTS vs. copper: HTS vs. LTS:
Higher field Higher field
Lower weight More field stability
Smaller Far simpler cryo design =>
lower design and
manufacturing costs
=> lower operating costs
20
21. HTS Component Fabrication & Refrigeration
HTS-110 (New Zealand)
HTS product development and
manufacturing; modeling and design of
HTS products; HTS coil fabrication and
testing; HTS magnet design, fabrication
and testing; and cryogenic system
integration.
Cryomagnetics, Inc. (Oak Ridge, TN)
Superconducting magnets; Dewars;
Cryogenic Instrumentation and
Accessories
Scientific Magnetics (England)
Superconducting and Cryogenic Systems
Ricor (Israel)
Designs, manufactures, sells and
maintains cryocoolers for various
applications
21
22. Context of HTS Wire Timeline
1987
1987 - Founded
1991 - HTS 1G
/// 2003
Jan
2004
Mar
Commercial 155,000 m
2005
Mar
389,000 m
2006
Mar
1700 m
2007
Apr
Sales target
2008 2009
Dec
2010
Full capacity
1995 - HTS 2G Production 10,000 m 8,000,000m/yr
Sep $30MM capex
Pre-pilot 2G Dec
Capacity target
Dec 300,000 m
2G - 1000 m ship 720,000 m
22
23. Manufacturing
Headquarters in Westborough, MA HTS wire manufacturing plant in Devens, MA
Source: AMSC Website
23
24. Cables
HTS Manufacturing in Deven, MA
Sources: Left - Sumitomo Right - AMSC presentation U.S. Department of Energy 2005 Annual Superconductivity Peer Review
24
25. Cryogenics of Cable T&D
How is it kept cold?
Source: AMSC presentation U.S. Department of Energy 2005 Annual Superconductivity Peer Review 25
28. Recap
Strong forces create volatility => opportunities, but also risks.
Manage risks
• fundamental and leverageable underlying technology: HTS wire
• strong need with few alternatives: power transmission better than generation
• proven ability to plan and execute: strong business function track record
AMSC has few US competitors and strong international position
• First to market in military, grid, and cable applications
• Says no competitor in 2G that can ship performance and volume (yet)
• Most serious competitor: Sumitomo (partners with SuperPower)
28
29. Company Financial
“We expect fiscal 2007 to be a We are now in FY 2007
momentous year for AMSC as we (Mar 2006-Mar 2007)
deliver a series of very important
world firsts,” Yurek, May 2006. • PES - Profitable for first time growing
revenues 35% to $20MM.
• SuperMachines: Deliver the world’s first • SuperMachines - flat to decline (transition
36.5 ship propulsion motor to the US Navy. year. Watch contract for third hull engine for
new Navy destroyer.)
• PES: Deliver the first commercial HTS power
• Cable - flat to decline (transition year).
grid product - the SuperVAR
• AMSC Wire: Install and operate the world’s
first transmission voltage HTS power cable in a
commercial gird Transition year to 2G HTS is ahead
of schedule
• Reduced Price of 1G HTS wire
• Wrote down 1G inventory (400,000 meters)
$1.6M
• Wrote down 1G equip $5.0M
• Settled $2.7M with legal challenge
29
30. Company Financial
Revenues
$50.9
2006
Revenues by Business 2006 2005
AMSC Wires 14,206,913 11,511,637
SuperMachines 21,663,884 31,107,572
Power Electronic Systems 15,001,651 15,663,629
Operating Loss by Business 2006 2005
AMSC Wires (27,204,629) (15,885,775)
SuperMachines (707,593) 412,308
* Power Electronic Systems (3,683,314) 66,067
Sources: Top - AMSC presentation U.S. DOE 2005 Annual Superconductivity Peer Review; Bottom - AMSC 2006 Earnings Conference Call 30
31. Company Financial
Margins by Business 2007
AMSC Wires 30-35%
• Limited by Capacity
SuperMachines varies • Break-Even at 2,000,000 m
Power Electronic Systems 40-50%
• Enough cash through 2008
Opportunities Number Comment
AMSC Wires - 2G ahead of schedule, saves 20% cost on projections
Replacement Cables 2100 Immediate need (EPRI) ($10k-100k/sale?)
DOE new contract in Aug ?? Must bid; Timing uncertain. Not included.
SuperMachines - FIRST: engine, fault interrupter (I.e. surge protector)
De-Gaussing Systems 3 Foreign Navy visitors to AMSC
New Destroyers 1 Total of 2 each on 7 DDX ships
Non-military ships ?? Creating Alliance
SuperVAR ?? Tennessee Valley Authority
Fault Protectors ?? Shipped to Asia-Pacific region
Power Electronic Systems - Lowered costs through research in 2006
Detroit Situations 100 AMSC analysis, at $2.4 MM per sale
Wind Turbines ?? Grid interconnect stds esp UK, AUS, ES
31
32. Company Culture
Low Feedback, High Risk:
• Methodical Cultures
• Conservatism
• Transparency
“The full anticipated
value of these potential
new contracts for power
cables [DOE] and
rotating machines
[Navy] are not included
in the company's current
budget or revenue
estimates for fiscal 2007
because of uncertainty
with respect to the
structure and timing of
government contracts.
Overall, AMSC expects
that its revenues for
fiscal 2007 will be
relatively in line with
fiscal 2006.”
- Yurek, May 2006
32
37. Fundamental Value Creators
IP - Reputation - Relationships
Strategic business alliances include
• Electricite de France - The world's largest electric utility
• GE Energy - A global leader in manufacturing products used to distribute, protect and control
electrical power and equipment
• Ideal Electric - a designer and manufacturer of electric generators, motors and associated
equipment
• Long Island Power Authority - Long Island’s primary electric service provider
• Nexans - A global expert in cables and cabling systems
• Northrop Grumman Marine Systems - a world leader in the design, development, and
manufacture of defense and commercial electronics systems.
• Siemens - a global power systems company
• Suzuki Shokan Co. - distribution partner for 344 Superconductors in the Japanese market
• U.S. National Laboratories
• Ultera - a joint venture between two of the world's leading wire and cable firms, Southwire
Company, and nkt cables and is dedicated to the development and commercialization of HTS
power cables.
•Tennessee Valley Authority - the largest public power company in the United States
• United States Navy
37
38. Reputation
2004 Superconductor Industry Person of the Year
(shared award)
“But underpinning all is the fact that the commercialization of a
highly complex materials science must go right! It requires deep
scientific understanding, great energy, great belief, and a steadfast
commitment. Alex … is a vital part of the technical leadership of
the whole field.”
- David Larbalestier, Director, Applied Superconductivity Center, U of WI
“I deeply value his work structuring the development roadmap of
2G HTS wire, and his methodical approach to overcoming all
technical obstacles, allowing his team to reach successfully
targeted milestones. … His faith in the continuous progress of
superconductor performance is based on an outstanding
knowledge of material science and applied technology.”
- Jacques Jouaire, Vice President, Research and Development, Electricité de France (EDF)
“ During his career at AMSC he strongly pushed forward both the
basic understanding of HTS materials and the practical application
for devices of power engineering. “
- Heinz-Werner Neumueller, Power Components & Superconductivity, Siemens AG
38
39. Valuation
Size of market? Est. via Cu Wire
From Cu industry data: 3,700 millions of
pounds of copper, of which 47% of market
goes to copper wire applications, so roughly:
3billion / 2 = 1.5 billion pounds Cu.
Absolutely guessing from price of retail Cu
wire, which seems to be about $8/lb., this is
about $12 billion market.
(Retail Cu premium speaker cable is about
$30/lb. Cu)
39
40. Stock Value
Back of the Envelope
$10 Billion Market in 2006 (conservative)
Doesn’t include new HTS products
! Surge Protector
! Wind Farms
Competitive Threats
Copper
HTS Competitors
Dilution
Will they really avoid needing more capital to scale operations?
!They say they won’t through 2008
!They have zero debt
40
41. Summary
• An Infrastructure solution with Breakthrough Technology
• Also social benefits (security, stable power) and facilitates
distributed alternative energy (e.g. wind farms)
• Typical Technology Risk during Scale-up mitigated by Core
Technology, Company Maturity, Government Buy-In and
Social Visibility
41
43. APPENDIX 1: SUPERCONDUCTIVITY
What is it
• Region where resistence goes to
zero. Believed to be because of
Cooper pairs. (electrons
generating phonons that keep
them together)
• Type 1 Superconductors are low
temperature, and are completely
superconducting (Hc1(T))
• Type 2 Superconductors allow
some penetration of magnetic
field, which creates current
vortices, so resistance isn’t truly
zero.
43
44. APPENDIX 1: SUPERCONDUCTIVITY
Why does it do that
Type I (cooper pairs joined by
phonon)
Type II (incomplete H
penetration leading to vortices)
Electronic devices (e.g. SQUIDs,
Josephson Junctions) are Type 1
AMSC and others using Type 2
44
45. APPENDIX 1: SUPERCONDUCTIVITY
What is “vortex pinning”?
Defects in the lattice pin the
vortices, which are areas of non-
superconductivity.
Source: Mathematical Models and Numerical Simulations of Superconductivity: an Introduction. Qiang Du, Department of Mathematics,
Pennsylvania State University.
45
46. APPENDIX 1: SUPERCONDUCTIVITY
• Crystal Structure
Source: Mathematical Models and Numerical Simulations of Superconductivity: an Introduction. Qiang Du, Department of Mathematics,
Pennsylvania State University.
46
47. APPENDIX 1: SUPERCONDUCTIVITY
47
Source: Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
48. APPENDIX 1: SUPERCONDUCTIVITY
48
Source: Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
49. APPENDIX 1: SUPERCONDUCTIVITY
49
Source: Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
50. APPENDIX 1: SUPERCONDUCTIVITY
50
Source: Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
51. APPENDIX 1: SUPERCONDUCTIVITY
51
Source: Mikael Mulot, Helsinki University of Technology, University of Optoelectronics, S-104.3310, Updated Feb 6, 2006
53. APPENDIX 2: COPPER
Using Copper wire in industrial use (mag, cable) as a proxy, the market is
$10B approximately, worldwide.
Copper is a commodity, while 2G HSC is premium
Price parity with copper by end of decade.
Cu $/lb
1/04 1/06 1/08 1/10
$8-14/lb. by 2010
Source: Left - London Metals Exchange http;//www.lme.co.uk Right - Margolin Consulting
53
54. APPENDIX 3: NANOTECH UNCERTAINTY
Groups challenge FDA on nanoparticles
May 17, 2006 -- The U.S. Food and Drug Administration has been challenged on the way it
regulates skin products with nanoparticle ingredients.
Friends of the Earth and the International Center for Technology Assessment filed a petition with
the FDA and called for better monitoring and regulation of products like sunscreen and cosmetics,
The San Francisco Chronicle reports.
The groups have released a report of products they claim contain ingredients small enough to seep
into the body and effect brain chemistry.
During a telephone news conference from Washington, George Kimbrell, an attorney for the groups,
said they will sue if the FDA doesn't make changes within 180 days to how they study and regulate
nanoparticle products.
FDA spokeswoman Susan Cruzan said the agency will look into the "development and use" of
nanoparticles but said there isn't any data showing it is hazardous.
Copyright 2006 by United Press International
Political Risks This news is brought to you by PhysOrg.com
Regulation
54