REAL CLIENT
MANAGED PORTFOLIO
RUI DENG
FRANK DAMIAN
PO-CHIEH SHIH
March 29, 2012
AGENDA
 Introduction
 Macroeconomic Review
 Relevant Stock Market
 Company Review & Business
 Financial Analysis
 Financial Projections
 Recommendations
INTRODUCTION
Source: Capital IQ Benchmark S&P 500
INTRODUCTION –
TARGET COMPANY
EnerSys (ENS) is one of largest manufacturer, marketer and
distributor of industrial batteries. ENS manufacture, market and
distribute related products such as chargers, power equipment and
battery accessories. In addition, ENS provides related after-market
and customer-support services for industrial batteries. ENS’s
products sell globally to over 10,000 customers in more than 100
countries.
Source: ENS 2011 Annual Report, Form
10-K, p. 5
INTRODUCTION –
TARGET COMPANY
 Position in GICS Map
201040
Electrical Equipment
20104010
Electrical Components & Equipment
Companies that produce electric cables and wires, electrical components or
equipment not classified in the Heavy Electrical Equipment Sub-Industry.
INTRODUCTION –
TARGET COMPANY STOCK PRICE
Source: Morningstar
INTRODUCTION –
TARGET’S KEY STATISTICS
Ticker
ENS
Stock Price
35.79
Beta:
1.79
52wk Range:
17.35 - 40.32
Market Cap:
1.71B
P/E (ttm):
13.83
EPS (ttm):
2.59
Dividend Yield:
N/A (N/A)
Number of Shares Oustanding:
Gross Profit Margin:
50,044,246
22.90%
Operating Income Margin:
9.40%
Net Profit Margin:
5.80%
Return on Assets (ttm):
7.01%
Return on Equity (ttm):
13.67%
SOURCE: Yahoo Finance
INTRODUCTION –
TARGET’S KEY STATISTICS
MACROECONOMICS REVIEW –
GLOBAL STATISTICS
MACROECONOMICS REVIEW –
US STOCK MARKET
RELEVENT STOCK MARKETINDUSTRY MARKET IN THE U.S.
RELEVENT STOCK MARKETINDUSTRY COSTS STRUCTURE
RELEVENT STOCK MARKETCOMPETITORS
The industrial battery market is highly competitive. ENS’s
competitors range from development stage companies to large
domestic and international corporations.
• Europe
Exide Technologies, FIAMM, NorthStar, SAFT, and Hoppecke.
• Americas
Exide Technologies, East Penn Manufacturing, C&D
Technologies Inc, NorthStar, SAFT and EaglePicher (OM
Group).
• Asia
GS-Yuasa, Shin-Kobe and Zibo Torch, Coslight, Narada, and
China Shoto.
Source: ENS 2011 Annual Report, Form
10-K, p. 8
RELEVENT STOCK MARKETENS MARKET SHARE IN THE U.S.
RELEVENT STOCK MARKETCOMPETITORS
RELEVENT STOCK MARKETCOMPETITORS
RELEVENT STOCK MARKETCOMPETITORS
Competitor Comparisons
ENS
XIDE
JCI
Market Cap:
1.71B
252.07M
21.86B
Employees:
8,400
10,027
162,000
12.90%
-2.00%
9.20%
2.24B
3.08B
41.71B
21.97%
16.91%
15.07%
250.08M
185.88M
2.76B
9.02%
3.28%
4.79%
128.74M
45.75M
1.66B
EPS (ttm):
2.59
0.55
2.41
P/E (ttm):
13.83
5.81
13.34
PEG (5 yr expected):
1.71
0.25
0.62
P/S (ttm):
0.75
0.08
0.53
Dividend Yield:
N/A
N/A
2.20%
Return on Assets (ttm):
7.01%
3.05%
4.49%
Return on Equity (ttm):
13.67%
11.08%
15.98%
Qtrly Rev Growth (yoy):
Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
Operating Margin (ttm):
Net Income (ttm):
SOURCE: Yahoo Finance
COMPANY REVIEW & BUSINESS
HISTORY
• EnerSys and its predecessor companies have been
manufacturers of industrial batteries for over 100 years.
• Morgan Stanley Capital Partners teamed with the
management of Yuasa, Inc. in late 2000 to acquire from Yuasa
Corporation (Japan) its reserve power and motive power
battery businesses in North and South America.
• On January 1, 2001, the company changed its name from
Yuasa, Inc. to EnerSys to reflect our focus on the energy
systems nature of our businesses.
• In 2004, EnerSys completed an initial public offering (the
“IPO”).
Source: ENS 2011 Annual Report, Form
10-K, p. 6
COMPANY REVIEW & BUSINESS
PRODUCTS & SERVICES
ENS has two primary industrial battery product lines: reserve
power products and motive power products.
• Reserve power products
• Backup power for the continuous operation of critical
applications in telecommunications systems.
• Uninterruptible power systems, or “UPS”, applications for
computer and computer-controlled systems.
• Other specialty power applications
• Motive power products
• Are used to provide power for manufacturing, warehousing
and other material handling equipment, primarily electric
industrial forklift trucks, mining equipment, and for diesel
locomotive starting and other rail equipment.
Source: ENS 2011 Annual Report, Form 10-K, p. 5
COMPANY REVIEW & BUSINES
PRODUCTS & SERVICES
ENS’s trademarks:
ArmaSafePlus, Cyclon, DataSafe, Deserthog, Douglas Battery,
Douglas Legacy, Energia , FIAMM Motive Power, General
Battery, Genesis, Hawker, HUP, Ironclad, LifeGuard, LifePlus,
Life Speed, LifeTech, Loadhog, Odyssey, Oerlikon Battery,
Oldham, Perfect Plus, PowerGuard, PowerSafe, ProSeries,
Redion, Smarthog, Superhog, Supersafe, TeleData, Varta,
Waterless, Wi-IQ, Workhog and XFC Flex.
ENS offer high-quality service, including preventative
maintenance programs and customer support. The extensive
industry experience of ENS’s sales organization results in
strong long-term customer relationships.
Source: ENS 2011 Annual Report, Form
10-K, p. 6
Financial Analysis
 Recent News:
 Mar 22, 2012
 Completed a license and technology development agreement
with PowerGenix Systems, Inc. to provide nickel-zinc batteries to
EnerSys' industrial battery customers worldwide
 Mar 28, 2012
 Announced the formation of a new joint venture company in India
to produce and market batteries for industrial applications
 Expands the addressable markets for its products
Source: ENS Investor Relations
http://phx.corporate-ir.net/phoenix.zhtml?c=180086&p=irol-newsArticle&ID=1677641&highlight=
http://phx.corporate-ir.net/phoenix.zhtml?c=180086&p=irol-newsArticle&ID=1675579&highlight=
Financial Analysis
 Sales (2010-2011)
($million)
Europe
Americas
Asia
Total net sales
2010% Net sales
742
47.0%
700.3
44.3%
137.1
8.7%
1579.4
100.0%
2011% Net sales $ Increase % Increase
890.3
45.3%
148.3
20.0%
896.6
45.6%
196.3
28.0%
177.5
9.0%
40.4
29.5%
1964.4
100.0%
385
24.4%
Reserve power
Motive power
Total net sales
820.5
758.9
1579.4
970.4
994
1964.4
52.0%
48.0%
100.0%
49.4%
50.6%
100.0%
149.9
235.1
385
18.3%
31.0%
24.4%
 Contributions to % Increase
Europe
Americas
Asia
Reserve power
Motive power
Volume Price
Acquisition FoEx
Total % Increase
16%
6%
3%
-5%
20.0%
19%
4%
5%
28.0%
25%
-2%
6%
29.5%
16%
21%
2%
6%
2%
6%
-2%
-2%
18.3%
31.0%
Financial Analysis
 Interest Expense
2009
395.8
5.00%
19.8
4.3
1.7
25.8
($million)
Avg debt outstanding
Avg cash interest rate
Interest
Accured interest
Amortization of deferred financing fees
Interest expense
2010
364.1
4.30%
15.7
5.4
1.7
22.8
2011
326.3
4.40%
14.4
5.9
1.9
22.2
Average
362.1
4.57%
5.2
1.8
 Estimated Interest Expense
($ million)
Avg debt outstanding
Avg cash interest rate
Interest
Accured interest
Amortization of deferred financing fees
Interest expense
2012
2013
2014
2015
2016
2017
2018
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
362.1
4.57%
16.5
5.2
1.8
23.5
Financial Analysis
 Profitability
For the Fiscal Period Ending
Profitability
Return on Assets %
Return on Capital %
Return on Equity %
Return on Common Equity %
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
4.2%
6.3%
9.1%
9.2%
5.3%
8.0%
9.6%
9.7%
6.1%
9.0%
12.0%
12.0%
5.1%
7.2%
8.5%
8.6%
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
20.7%
14.7%
9.1%
6.0%
6.0%
3.0%
18.8%
12.3%
8.9%
6.6%
6.5%
2.9%
21.0%
13.0%
10.3%
8.0%
8.0%
4.2%
22.9%
14.8%
10.9%
8.1%
8.1%
3.9%
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
6.8%
10.0%
12.9%
12.9%
7.0%
10.1%
13.7%
13.8%
 Margin Analysis
For the Fiscal Period Ending
Margin Analysis
Gross Margin %
SG&A Margin %
EBITDA Margin %
EBITA Margin %
EBIT Margin %
Net Income Margin %
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
22.9%
13.2%
12.0%
9.7%
9.7%
5.8%
22.0%
13.0%
11.2%
9.1%
9.0%
5.8%
Financial Analysis
 Outperform the benchmark
Source: Bloomberg
Financial Analysis
 Asset Turnover
For the Fiscal Period Ending
Asset Turnover
Total Asset Turnover
Accounts Receivable Turnover
Inventory Turnover
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
1.1x
4.6x
5.8x
1.3x
4.7x
5.8x
1.2x
4.6x
5.7x
1.0x
4.3x
5.3x
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
1.7x
1.0x
0.2x
1.7x
1.0x
0.0x
2.2x
1.5x
0.6x
2.1x
1.4x
0.3x
2.2x
1.3x
0.2x
2.2x
1.2x
0.3x
80.1
77.2
79.5
85.5
78.8
71.1
63.3
63.4
63.8
69.5
71.0
68.3
52.3
48.3
49.4
47.1
51.5
46.9
91.0
92.3
93.8
107.9
98.3
92.4
1.1x
4.6x
5.1x
1.2x
5.1x
5.3x
 Short-term Liquidity
For the Fiscal Period Ending
Short Term Liquidity
Current Ratio
Quick Ratio
Cash from Ops. to Current Liability
Avg. Days Sales Outstanding
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
Avg. Days Inventory Outstanding
Avg. Days Payable Outstanding
Avg. Cash Conversion Cycle
Financial Analysis
 Solvency
For the Fiscal Period Ending
Long Term Solvency
Total Debt/Equity
Total Debt/Capital
LT Debt/Equity
LT Debt/Capital
Total Liabilities/Total Assets
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
73.8%
42.5%
69.7%
40.1%
61.3%
61.4%
38.0%
53.6%
33.2%
59.4%
57.7%
36.6%
52.9%
33.5%
54.8%
45.9%
31.5%
42.5%
29.1%
52.5%
12 months
Mar-312007
12 months
Mar-312008
12 months
Mar-312009
12 months
Mar-312010
12.4%
47.1%
13.9%
30.5%
6.8%
11.5%
170.2%
21.8%
68.9%
6.8%
22.7%
32.0%
43.1%
43.3%
13.0%
21.4%
96.6%
27.6%
(94.5%)
6.3%
8.3%
37.2%
(29.2%)
(37.6%)
(11.4%)
(12.7%)
14.2%
(3.1%)
5,361.3%
26.9%
(12.7%)
(24.0%)
7.7%
21.5%
4.6%
10.7%
28.9%
16.4%
(37.7%)
(21.1%)
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
26.5%
20.9%
26.1%
20.6%
46.5%
28.4%
22.1%
26.0%
20.3%
46.7%
 Growth
For the Fiscal Period Ending
Growth Over Prior Year
Gross Profit
Net Income
Accounts Receivable
Inventory
Net PP&E
Total Assets
Tangible Book Value
Common Equity
Cash from Ops.
Capital Expenditures
12 months
LTM
Mar-31- 12 months
2011 Jan-01-2012
24.6%
82.1%
21.0%
31.7%
9.3%
10.7%
42.8%
24.9%
(44.0%)
32.9%
16.6%
27.3%
8.0%
14.3%
3.8%
3.5%
4.8%
6.6%
112.3%
(3.4%)
Comparables – Multiples Valuation
Reality Check
 DuPont Analysis
2008
2009
2010
2011
NPM
2.9%
4.2%
3.9%
5.8%
TAT
1.30
2.53
9.7%
1.23
2.35
12.0%
1.00
2.17
8.6%
1.13
1.98
12.9%
EM
ROE
 Estimated
2012
2013
2014
2015
2016
2017
2018
NPM
7.2%
8.2%
8.9%
9.3%
9.6%
9.8%
9.9%
TAT
1.24
1.86
1.28
1.80
1.29
1.70
1.27
1.57
1.25
1.44
1.20
1.34
1.16
1.24
16.6%
19.0%
19.4%
18.5%
17.2%
15.8%
14.2%
EM
ROE
DCF Model
 CAPM
 WACC
Risk -free rate Beta
Risk Premium CAPM
2%
1.79
6%
12.7%
 Historical ROE
ROE
31-Mar
31-Mar
31-Mar
31-Mar
2007
2008
2009
2010
2011
2012
9.2%
9.7%
12.0%
8.6%
12.9%
13.8%
 Cost of Equity
CAPM
ROE
Cost of equity
LTM 12m
31-Mar
1-Jan
Weight
12.74%
80%
13.35%
20%
12.86%
Debt
253,400
Cost of debt
7.26%
Equity
1,679,493
Cost of equity
12.86%
Tax rate
28.80%
WACC
11.9%
 Discount Rate
Adjustment
Discount rate
1.0%
12.9%
Financial Analysis
 Sensitivity Analysis
 Sensitive to discount rate
 1% increase in discount rate
 Price estimation drops to $33 (13% decrease)
 1% decrease in discount rate
 Price estimation increases to $45 (17% increase)
Recommendation
•
•
•
Current Price = $34.77
DCF Model = $35.80
Comparables Approach = $36.31
•
•
Uncertainty over its ability to compete with new technologies
and companies in Asia
Insider Transaction
Need to see tangible results from its cost-cutting initiatives and
recent acquisitions
Still believe in management and business
•
Recommendation: WATCH LIST
•
•