Acorn Energy sells CoaLogix - Target raised to $6.10

Steven Ralston, CFA

Acorn Energy sells CoaLogix – Target raised to $6.10

Acorn Energy (ACFN - Analyst Report) announced the signing of a definitive agreement to sell its majority-owned CoaLogix subsidiary for $101 million or 4.9 times 12-month trailing sales to Energy Capital Partners. Acorn Energy owns approximately 65% of CoaLogix on a fully diluted basis. Since its acquisition in 2007, Acorn’s investment in CoaLogix totals $18.2 million. When the sale closes, the after-tax proceeds are estimated to be approximately $57 million or $3.26 per share. The added capital provides the Board the opportunity to consider several options: 1) a special dividend, 2) a solid dividend with a share repurchase authorization and/or 3) the opportunistic acquisition of other early-stage energy infrastructure operations. In addition, the cash to be received from the full-valued sale increases our target to $6.10.

Acorn Energy is now a holding company with a portfolio of three operating companies that are focused on addressing the challenges of the energy sector, particularly the opportunities in repairing, monitoring, updating, expanding, and protecting the existing global energy infrastructure.

In July, Acorn also announced three significant orders received by its US Seismic Systems (USSI) subsidiary. On July 6th, USSI received an order for fiber optic sensors as part of a real-time multi-well Hydraulic Fracture stimulation Mapping (HFM) system offered by Octave Reservoir Technologies. The order is for an unnamed leading domestic oilfield seismic service company. Also, on July 6th, USSI received an order for custom downhole seismic systems, which are based on the company’s fiber optic sensor technology. The annual value of this contract when in full production is expected to be approximately $6 million. The high temperature, permanent downhole systems provide high resolution imaging to enhance oil recovery from mature, declining oil fields. Lastly on July 5th, USSI was awarded an order to develop a large-scale, fiber optic sensor technology seismic system for a major oilfield services company.  Once in production, the value of this order is over $10M annually. USSI’s fiber optic sensors will be permanently embedded in reservoirs and provide real-time information to facilitate yield improvement from reservoir stimulation. Also, USSI has moved into a new 21,000 square foot manufacturing facility in Chatsworth, California and is expanding its staff to accommodate the increased R&D required.

We reiterate our Outperform rating. Our target is being raised from $5.10 to $6.10 due to the healthy proceeds expected from the sale of CoaLogix.

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