Author: Andrew T. Gillies

Taking On Congress’ Favorite Biofuel

For a young company, Virent Energy Systems seems to lead a charmed life. The Madison, Wis., biofuels outfit has pulled in more than $30 million from venture capitalists while striking strategic relationships with the likes of Cargill, Honda Motor and Royal Dutch Shell.

Watch Virent Chief Executive Eric Apfelbach’s crisp PowerPoint presentation on the company’s business, and you’d probably want to get a piece of this action too. Virent has a low-temperature, low-pressure, catalytic process for turning carbohydrates (sugars) into gasoline, diesel and other fuels. Its 70 employees now make a gallon or so daily. Targeting gasoline as its first fuel, Virent hopes within five years to raise that production to 10 million to 15 million gallons annually.

The jump from several hundred gallons to 15 million will require extraordinary chemical engineering, a feat Apfelbach sounds confident his company can pull off. Engineering a hospitable climate in Washington, D.C., however, could be trickier.

“We have to make sure that we don’t get locked out,” worries Apfelbach, 47. “We just don’t want to get killed by policy.

Full story at Forbes.com

The Pressure Is On For Ceramics

WASHINGTON, D.C. – In the early 1980s, buzz grew loud around the use of ceramics in motor vehicles. Given advances in the technology, certain experts argued, it would not be too long before entire engines could be mass-produced from the hard, heat-resistant material.

Those experts were wrong. “The performance characteristics of an ‘all-ceramic’ engine are not that attractive, really,” says John Heywood, a professor of mechanical engineering at the Massachusetts Institute of Technology.

Still, as automakers struggle to go easier on the environment, more ceramics will end up in cars, particularly for emissions control and cutting the weight of components. Publicly traded participants in the ceramics business, notably Ceradyne (nasdaq: CRDN) and Japan’s Kyocera, stand to benefit.

Full story at Forbes.com

Zero To $2.5 billion In 18 Years

Washington, D.C. – World Wide Technology, a technology distributor ranked 199 on our most recent list of America’s largest privately held companies, has chalked up some impressive recent sales stats.

Over the past three years, the St. Louis company has averaged annual revenue growth of 25%, thanks to business from blue-chip tech customers such as Cisco Systems (nasdaq: CSCO – news – people ) and Dell (nasdaq: DELL – news – people ). WWT has worked for the latter company since 2003 and now has 100 folks on the account. Those employees forecast and monitor demand for computer components at Dell factories. A network of WWT warehouses replenishes those factories with trucks, loaded up with gear from dozens of suppliers, that arrive every 45 minutes.

Contrast WWT’s sales growth with its publicly traded competition in the table below–the average three-year revenue growth number is 10%. Only two companies, Brightpoint (nasdaq: CELL) and Nu Horizons Electronics (nasdaq: NUHC), beat World Wide Technology on this metric.

And WWT tells us that it doesn’t owe its top-line growth to mergers and acquisitions. “It’s been organic,” says Joseph Koenig, 43, WWT’s President. “Five years ago, we put together a plan of where we wanted to be, and it’s really execution of that plan.”

Full story at Forbes.com

Wind Winds Up

Washington, D.C. – Gregory Wetstone has overseen government affairs for the American Wind Energy Association, a Washington trade group, for a year.

“Nonstop action,” he says of his tenure.

The action will stay intense in the near term. Next week, Wetstone expects a vote in the U.S. House of Representatives on his group’s most important legislative priority, a long-term extension of the wind energy production tax credit (PTC). The subsidy provides an income tax credit of two cents per kilowatt hour for electricity produced by windmills. Since its creation in 1992, the PTC has expired on three occasions, each a big setback for the wind business. It’s set to expire again at the end of this year.

Wetstone predicts the PTC will make it through the House, as it did when that body passed a broad energy package in December. Prospects look difficult, however, in the U.S. Senate, where partisan maneuvering and disputes over funding offsets have caused the PTC to twice fall short of passage in recent months. (See: “Why The Energy Bill Will Die.”)

Full story at Forbes.com

Beltway Tech Stocks: Bottom’s Up?

Washington, D.C. – Working from BB&T Capital Markets’ northern Virginia office, stock analyst Michael Lewis has spent the last six years building up a network of government and defense contacts.

“I tell investors that, at the end of the day, it doesn’t matter what our ratings are, what our price targets are,” says Lewis. “Our value proposition to the investment community is what we’re hearing at the Pentagon and on [Capitol] Hill.”

At an event hosted last week by the National Defense Industrial Association, a trade group, Lewis heard from high-level budget personnel at the U.S. Army, Air Force, Navy and Marine Corps about their 2009 priorities. One conclusion Lewis drew from the event: Funding threats to information technology projects, which have dogged several big tech services stocks, may be diminishing.

Lewis tells us that none of the military’s budgeters on the panel explicitly said cuts to information technology projects were off the table, but at the same event a year ago, there was talk of scaling back on technology in favor of immediate concerns (like fighting two wars). Not this year.

“[Information technology] wasn’t even brought up,” says Lewis. “That was very surprising.”

Full story at Forbes.com

Day & Zimmermann: Mission Possible

Harold Yoh has been chief executive for 10 years at Day & Zimmermann, a closely held engineering and construction concern. He admits he still occasionally struggles to describe his work.

“The cocktail party question of ‘What do you do?’ isn’t the easiest one to answer,” he jokes.

A quick glance at Day & Zimmermann’s business description reveals why. The 107-year-old outfit, headquartered in Philadelphia and ranked 317th on our annual list of America’s largest privately held companies, provides services as varied as storing 600,000 tons of ammunition, providing temp staffing of technology workers and maintaining nuclear power plants.

But one thing Yoh, 47, doesn’t labor to explain is recent sales growth. Revenues in 2007 were $1.9 billion, up a robust 36% from $1.4 billion in 2006. This year, Yoh indicates, Day & Zimmermann should make it well past the $2 billion mark. Day’s business mix seems to be working, however difficult it is to explain at cocktail parties.

Full story at Forbes.com

Fast Tech 25: Beltway Bets

To come up with the eight companies in the accompanying table, we applied a “Business in the Beltway” screen to our 2008 Fast Tech 25. In other words, we scanned the filings of the Fast Tech list to see which companies played up their business with the public sector, particularly the U.S. federal government.

Why do this? As we have often noted on Forbes.com, the fact that a company sells goods or services to the feds is no guarantee of its success. Nevertheless, it is not a bad idea to invest in technology companies that are going after government customers. Tech procurement has its flaws, but it can act as a seal of approval for vendors winning government contracts. That’s why you’ll often find smaller tech companies, for example, touting wins with a defense or civilian agency.

Consider also that tech buying cycles in the public and private sectors sometimes diverge, as they did dramatically after the dot-com bubble burst at the turn of the century.

A year ago, we zeroed in on MTC Technologies (nasdaq: MTCT – news – people ), touting the stock as a cheap government contracting situation on the Fast Tech list. For most of 2007, our call looked like a bad one, something we fessed up to in our year-end wrap up of 2007 Beltway bets.

Two days after our article about our 2007 Beltway picks appeared, BAE Systems (other-otc: BAESF.PK – news – people ) made a $450 million acquisition bid for MTC Technologies. The deal hasn’t closed yet, but MTC shares show a 6% gain since our 2007 Fast Tech story, vs. a 7% decline for the S&P 500.

Full story at F0rbes.com

Beltway Bet: Beaten-Down Detica

Thomas Black, chief executive of British tech consultancy Detica Group, has 200 employees tending to civilian government and military clients in the U.S. He wants to bring that number up to 1,000 in the next few years.

“That is our ambition,” says Black, Scottish of origin and 48 years of age.

But lately, such lofty ambitions haven’t been reflected in Detica Group’s share price. The London-listed stock has dropped 12% (in U.S. dollar terms) thus far in 2008 and 53% from a 52-week high of $8 last July.

With the sell-off, Detica shares look interesting.

Why the stock drop? Detica’s customer mix is one culprit. Founded in 1977 as a boutique providing information security services to U.K. defense customers, Detica specializes today in business intelligence–the analysis of huge amounts of data to weed out fraud, manage risk and gain competitive advantage.

Government clients still account for three-fifths of the company’s $307 million in revenues for the year ending last March. But 27% of Detica’s sales came from financial services clients. Given the grim parade of big banks posting subprime-induced losses, the concern here is that spending on things like business intelligence will freeze.

There are also doubts about the public sector side, notably Detica’s plans to push into the U.S. market. Last spring, the company created its DeticaDFI unit with the acquisition of DFI International, a 200-person Washington consulting group focused on budgets and counterterrorism. Building from there could be tough.

Full story at Forbes.com

Stocks For A Democratic White House

Just over a year ago, we presented perspective from Stuart Sweet, president of Washington research firm Capitol Analysts Network. He gave us several industries with a favorable political outlook, and we did some screening within them.

Those picks have posted an average return of 22% so far, versus a 0% gain for the S&P 500. Sweet, a former Hill staffer with a business degree, advises investors on sectors that could get rattled or revved up by politics and activity inside the Beltway.

So, sticking with what works, we’re consulting with Sweet again. Broadly speaking, Sweet is bracing his clients for a Democrat in the White House and expanded Democratic majorities in both chambers of Congress.

“It’s a Democratic year,” he says. “A 60% chance of a Democratic president sounds reasonable to me.”

Why reasonable? In terms of the executive branch, one reason is history. Since 1960, Sweet points out, the party holding the White House has managed only once to hang on for three consecutive terms. That was Republican George Herbert Walker Bush, succeeding a two-term Reagan presidency that finished up with high approval ratings.

Things look different today. “If George W. Bush was facing voters,” says Sweet, “he would be a sure loser.”

Full story at Forbes.com