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Coverage Initiation: EnerSys
Value Line recently initiated coverage of EnerSys (ENS) in its flagship product, The Value Line Investment Survey. The Pennsylvania-based company is the world’s largest manufacturer, marketer, and distributor of industrial batteries and related products, such as chargers and power equipment. With manufacturing plants across the world, the company has a strong global presence, deriving roughly 50% of sales last year from foreign markets. EnerSys employs 9,000 workers around the world.
The company, in some form or other, has been producing industrial batteries for over 100 years. The EnerSys brand was born out of Morgan Stanley Capital Partner’s acquisition of Yuasa, Inc. in 2000. The move provided the newly formed company with a strong and established imprint in North and South America. Since then, EnerSys has worked to expand overseas. In 2002, the company acquired Invensys’ Reserve and Motive Power unit for $505 million. The addition of the UK group provided an entry point into more foreign markets, which the company has maximized over the last decade. From 2002 through 2013, EnerSys has acquired twenty-two battery businesses across the globe. This expansion has allowed for a decentralized business with favorable geographic flexibility. The company’s two segments, Reserve Power and Motive Power, essentially contribute an equal share of business, with the latter posting 52% of sales in 2013.
Reserve Power products are used for backup power in a wide variety of industries, where uninterruptible power is of prime concern. Customer uses of these products range from telecommunication and electric control systems, to commercial aerospace and computer-control systems. The segment derives business locally and overseas, and sells its defense products to an array of allied militaries, such as the United Kingdom and Germany. The group’s counterpart, the Motive Power segment, provides most of its products to a large and diversified base of end-market users. The batteries are employed by forklifts, mining equipment, air and rail equipment, and various other applications.
While the company boasts industry-leading market shares in the Americas and in Europe, the region with the most upside is Asia. Noting this, management recently announced plans to open a state-of-the-art battery manufacturing facility in China. The plant will be located in the Jiangsu Province and is set to be finished and ready for business in 2015. The increased presence in that fast-growing region, where demand for the types of industrial products EnerSys develops continues to amplify, should help to develop new and lucrative business relationships with clients on the continent.
Despite flat sales in 2013, the company expanded its net profit through the successful assimilation of new facilities and by shutting down underperforming plants. Strong management and further reductions in overhead auger well for EnerSys, as it expands its footprint in emerging markets. One potential drawback worth noting is the environmentally-sensitive nature of its business. As the company stores, uses, and disposes of a slew of hazardous materials, in particular, lead and acid, it is subject to increased regulation, especially as the industry grows into new markets.
Subscribers interested in owning a piece of this industrial battery manufacturer are advised to consult Value Line’s quarterly reports for EnerSys, as well as any supplemental reports and relevant articles as important news items arise.
At the time this article was written, the author did not have positions in any of the companies mentioned.