We wrote in our Gridfight post that, as fossil fuel interests and renewable energy proponents jockey to put themselves in position to supply the energy of the future, investors might look for opportunity in the companies that will make and build the modern smart grids that will transmit that energy to its end users.
The first of our “grid picks” is American Superconductor (NASDAQ: AMSC), which saw fine price action in the trailing 12 months, and is in the process of consolidating around $24, a nearly sixfold increase since its March, 2020 trough.
The Massachusetts-based industrial company has been making smart grid components of one kind or another since 1987, has refined the practice over time to stay on the cutting edge of the technology, and has the IP portfolio to prove it.
Superconducter? I hardly know her!
Since the cutting edge of smart grid tech isn’t where grid operators have wanted to be for most of that time, AMSC is still a growth-stage business. Wholesale infrastructure change isn’t cheap or easy, and private power companies are practically allergic to both structural change and capital expenditures. But recent grid failures in Texas, California and Oregon are forcing the issue, and pushing AMSC’s unique components and services into sudden industrial relevance.
The company uses two main product families – PowerModule electronic controllers, and Amperium superconducting wires – to form two distinct business segments: Wind and Grid. The Wind segment benefits from revenue generated by the licensing of windmill designs to makers of the windmills and sells high-tech switching and conduction components that handle the hand off to the power grid, along with their software. That business figures to grow as fast as wind generation grows, or faster if it can get an inside sales track. Our AMSC thesis has more to do with its Grid segment.
Smart grid intelligence
While consumers may not care where their power comes from as they’re using it, they’ve been known to care quite a bit when it goes out. Outages cost billions in cleanup costs and downtime, and they’re becoming increasingly frequent on overtaxed, aging grid infrastructure. If consumers are going to switch from petrol-powered cars to electric ones, grids are going to have to get a lot more robust in a hurry.
Whether it comes as part of a giant public works project like the Green New Deal, or is simply mandated by power authorities, electrical grids are going to have to be adapted to the new demands of a growing world, and building new versions of the old ones that are failing under stress would be short-sighted. Intelligent switching and load management, and hyper-efficient conduction are the elements that make a smart grid “smart” and effective, and this company has the tech and expertise to deliver them.
American Superconductor recently finished a project that will provide grid redundancy to ComEdison in the City of Chicago. It’s expected to go live this year. Just recently, it was awarded a $15 million contract to supply power systems to the US Navy, a longstanding client who uses AMSC’s modules to equip ships with superconductive units that camouflage their magnetic signatures.
The tale of the tape on American Superconductor is decidedly boring. The operations have generated steady revenue for the past two years, basically sustaining themselves and giving management an opportunity to take care of the cap table. The first three quarters of fiscal 2021 (AMSC has a March year-end) have all shown growth and put the company on pace for a banner year. Last quarter, the company put the dry powder created by their clean cap table to use, raising $55 million at $15/ share. The raise came shortly after the acquisition of Northeast Power Systems Inc. (NEPSI), a smaller maker of smart grid components, for $26 million in cash and 873,000 shares. The company has no debt.
At this time, power has mostly been restored in Texas after a series of outages that will be remembered for a long time, and residential electricity bills in the thousands and tens of thousands of dollars that the media is having a field day with. This is bound to cause pressure on systems operators to get more generation on line, and make better use of the generation that exists.
We may be seeing the early stages of a political environment where grid fidelity and smart grid adoption is at the forefront, not just in Texas, but anywhere that doesn’t want to end up with a Texas-sized catastrophe.
CORRECTION – A previous version of this post erroneously had American Superconductor headquartered in Maryland. AMSC is based in Boston Massachusetts. Thanks to the eagle-eyed readers in the comments for setting us straight.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.