my 2c

EOL FH26

A good result, pre one-off NPAT +56%, 38% without, ARR +20%, Revenues +21%.

Some guidance was given, with most metrics being below the growth rates and levels of the FH. EOL stated that growth was lumpy and that they are conservative.

There were a few highlights with operating leverage continuing to be exhibited. Cash costs/revenues declined to 80% verus 87% pcp. Commentary indicated that the trend would continue. EOL stated that they are targeting expense growth at 50% of revenue growth. If that holds, earnings will explode to the upside.

The extra free cash flow lowered ND being $0.9m, and EOL forecast net cash by Q1 27. Good effort.

The focus is on sales growth, operational leverage and cash conversion. The sales function was reorganised on functional lines and away from geographical structure. EOL stated that the ARR pipeline is +24%. Increased marketing was said to be paying off, with more leads.

Another highlight was NRR, at 111% very high and attributed to very good cross-sell. Large enterprise customers are being added and buying more of the product suite.

EOL trumpeted their “One Stop Shop” as succeeding against the competition with a holistic offering, the algorithmic agentic engine enFlow being the centre piece.

EOL produced a defence against AI intrusion into their software business. stating that they operated in illiquid and private markets, with non-public data, in a highly regulated industry involving critical infrastructure. Participants are regulated and can be hit with high fines. The software is considered mission-critical. EOL’s goal is to be the industry standard with security, data, network effects and being the system of record, entrenching their position. EOL stated they are the embedded “plumbing” of the industry. The ISO 27001 certification was added, after much expense and effort, and it is considered a competitive advantage in security.

M&A is on the table again. EOl stated that Europe and Australia are the focus (not the US—good). Each year, Europe adds about the entire Australian capacity, so plenty of opportunity. Southern and eastern Europe were mentioned as an area of expansion, maybe organic. EOL has had an ongoing interest in “behind the meter”, that is, aggregating and trading household energy and could enter that market.

A negative was the increase in the churn rate 5% (3.3% pcp). EOL stated that 61% of this was due to clients ceasing to trade. While a much smaller 16% was clients building internal capability. An example of the loss of a large client was an Australian manufacturer that closed and was a large gas trader.

The last result for Shaun Ankers after some 16 years as CEO and did a good job. The new CEO is the head of Europe. Hopefully, the result is not spiced up for the farewell.

VALUATION AND SUMMARY

EOL has characteristics of a small business that I want exposure to. A leader in its field, profitable, with firm evidence of operational leverage, a large TAM and the ability to produce profits overseas. The European market is huge, and EOL has gained experience from Australia's early entry into the active energy markets.

If operating leverage continues as stated, earnings growth will be large. I have lower numbers than that and get an attractive valuation of around $13. Assumes 29% 5Y eps growth and a 25X exit multiple. Giving them the benefit of the doubt on further operating leverage, you can buy around $14. 

held