EnerSys

Company Overview: EnerSys (NYSE: ENS) delivers stored energy solutions for industrial applications. ENS is also involved in distributing and manufacturing automotive power batteries, battery charges, specialty batteries, and other battery products. The company’s business segments include Energy Systems, Motive Power and Specialty.

­­­­­­ENS Details

Material Business Updates

ENS Announces Quarterly Divided: On 11 August 2021, ENR’s Board of Directors declared a quarterly dividend of US$0.175/share of common stock to holders of record as of 10 September 2021 and payable on 24 September 2021.

Historical Financial Trend:

ENS illustrated sustainable historical growth while keeping the value proposition intact. The  Operating revenues have been consistently growing since FY17 with development in gross profits at a 5.9% CAGR (FY17 – FY21).

Figure 1: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

First Quarter FY22 Performance:

Figure 2: Quarterly Performance

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY21 Performance:

Figure 3: Annual Performance

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~45.69% of the total shareholding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. holds a maximum stake in the company at ~­­­10.23% and ~9.44%, respectively.

Figure 4: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

ENS witnessed sustainable growth in sales volumes across its Energy Systems, Motive Power and Specialty segments on consistent gross profit margins, delivering a 5-year CAGR of 3.9%. In addition, the company’s liquidity profile has remained strong with a compatible cash conversion cycle.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Favourable Regulatory Development: The US congressional infrastructure bills will act as a growth catalyst in EV charging, electric grid and high-speed broadband services, which may add additional revenue streams. Additionally, a massive 5G buildout is underway, which shall deliver contractual opportunities.

Improving Market Presence: Rapid Thin Plate Pure Lead (TPPL) demand build-up is falling in business lines. ENS is focused on delivering modular lithium systems in Energy Systems and Motive Power to enhance market leadership.

Key Risks:

High Competition: Due to excess capacity in some segments of the ENS’ industry and increased consolidation among industrial battery purchasers, ENS had been subject to considerable pricing pressures.

COVID-19 Impact: The pandemic became the major contributor to drainage in gross margins due to reduced headcount and considerable discretionary spending. Further drag in a pandemic may halt global distribution channels, further affecting revenues.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

ENS has delivered 3-month and 6-month returns of ~22.617% and ~19.564%, respectively. The stock is trading below the average of the 52-week high price of US$68.41 and the 52-week low price of US$104.47, indicating an accumulation opportunity. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at a slight premium compared to its peers’ average EV/Sales (NTM trading multiple), considering ENS’ resilient and diversified top-line metrics and prudent liquidity position. For valuation, few peers like Allied Motion Technologies Inc (NASDAQ: AMOT), AZZ Inc (NYSE: AZZ), Regal Rexnord Corp (NYSE: RRX) have been considered. Considering the potential for increased revenue streams, steady growth prospects, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the current market price of $76.06, as of 11 October 2021, up by ~0.38%.

Technical Overview

ENS Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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