Energy Management Software: Invest in Brands
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Energy Management Software (EMS) is not an easy business to be in. The exception would be if the EMS vendor represents an established brand, has a large sales force, can tailor services to different sectors, and will have the stability to hang around afterward for years to support the buyer. Then seriously consider investing in that company.
Why is the situation so complex? There are many reasons, all of which I will touch on, but it all boils down to corporations having been burnt by technology solutions being pushed on them that didn’t work out to fit the sales pitch. In addition, the EMS companies might not have been able to create the solution they needed, and/or the EMS vendor wasn’t there when buyers needed them post-sale.
Now corporations are wary of the over 100 vendors peddling EMS today. In addition, the diversity of the modern EMS is confusing to the buyer. Their eyes frequently glaze over when they hear about all the bells and whistles that are needed and presented as part of the initial sales pitch. As a result, they sense they have no choice but to stick with recognized brand names that have a long track record in energy efficiency, can custom-make solutions for each sector, explain and educate about the product, and be there to provide follow-up services.
No question, organizations need to be concerned about energy efficiency, as energy cost and usage are increasing. The Deloitte reSources 2012 study of corporate energy management trends found that 90% of companies had efficiency goals in place, and allocate about 14% of their capital spending to meet these goals. However, they have become disenchanted with the technology touted to solve the problem.
In fact, 63% have found “smart technology” has not been the fit for their specific needs. That’s up from 53% in the 2011 study. According to a survey by the independent analyst firm Verdantix, less than 20% of energy managers believe technology providers can help them. For years, many buildings had EMS that had been purchased and installed, but never properly utilized or it could not interface with the existing systems of the company. The process was perceived by those in the loop as too cumbersome or ineffective.
But for those whom do get the energy technology business, the potential is huge. According to Pike Research, EMS, just in the industrial sector, not counting government, could grow to $5.5 billion by 2020, up from $960 million in 2011. And don't forget that those purchasing an EMS package will likely purchase other services and products as well.
Large companies in which energy is only one department can leverage that particular business as a platform for cross selling. That’s a factor investors should pay attention to: what else besides EMS is the company pitching to current customers and prospects. Another factor for investors to look at is how large the company is in general, and then specifically how large the sales force is. The larger the company the more probable it is that it will be a dominant EMS company.
One of the most established players in EMS is Siemens (NYSE: SI). It has a large sales force which can cross-sell, as well as deep roots in energy. As GREEN RETAIL DECISIONS reports, Siemens created a partnership with continual process improvements with Michaels, the largest U.S. arts and crafts retailer, that has brought a 90% return on investment. Last Friday, Siemens’ stock was at $101, just below its 52-week high of $112. Some perceive its price as too high, so maybe a cheaper stock may be a better choice.
EnerNOC (NASDAQ: ENOC), an energy efficiency software company, has built its business in the special expertise of demand response, both with utilities and with state government. Last Friday it closed at $12.72, edging toward its 52-week high of $13.99 and far from the low of $5.41.
EnerNOC partners with utility companies in their contracts with corporations for reducing demand during peak periods, such as in the summer. That could take the simple form of temporarily dimming the lights in retail. Such a small adjustment saves utilities the money needed to activate an auxiliary power source for increased generation of supply. Most recently, EnerNOC installed EMS in more than 480 Commonwealth of Massachusetts buildings.
IBM (NYSE: IBM), software and hardware giant, and Johnson Controls (NYSE: JCI), a leader in building efficiency, have expanded the energy efficiency partnership they created in 2007 for datacenters to smart buildings. There’s a fusion of IBM Tivoli software and Johnson Controls Metasys® Sustainability Manger which, the two claim, can reduce energy costs 10% to 20%. Both parties have stock prices about at the mid point of their 52-week ranges. Last week, IBM’s closed at $193.36, with the range $177.06 to $211.79, and Johnson Controls’ at $26.19, with a range of $23.37 to $35.95.
EMS startups, such as Hara, C3, and JouleX, are bringing more creativity faster to the field. Although Siemens prides itself on moving quickly with enhancements, as at Michaels, few Goliahs can match the agility of the Davids. Some of the startups could manage to develop strong branding in certain sectors and with certain kinds of customers. At that point, the established players might buy their technology, or acquire the company itself: that’s what investors should watch for. After all, the major constraint of small enterprises becoming big players is their lack of the huge sales forces of a Siemens or IBM.
Overall, for investors there are plenty of opportunities in technology associated with just about every aspect of energy, including converting electricity from garbage (EfW), as done by Covanta. The trick is to be able to connect the dots as to what customers will buy, when they'll buy, and for how much.
ElenaCahill has no positions in the stocks mentioned above. The Motley Fool owns shares of EnerNOC and International Business Machines. Motley Fool newsletter services recommend EnerNOC and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.