Locality Planning Energy Holdings Ltd

ASX:LPE — Company Profile

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DickHunt
DickHunt
Added 2 months ago

An overview of the business is provided in the investor presentation of 12 June 2018.

Some of the positive attributes

  • high gross margins of 19%+
  • contracts are relatively long term and customers are likely to be quite sticky following expiry of the fixed term (i.e. will continue with LPE without shopping around)

Recent quarterly saw growth in installed capacity (which directly drives margin) of 26.7mWh, which is very high and at this rate will reach their target of 450mWh in Oct 2020.

Business should be very scalable as marketing costs are quite low and there is just a need for central functions (billing, customer service, accounting etc which should scale well).

Company hasa a very large addressable market. No moat as such.

Debt facility funds the inital capex. There is some working capital required for new installs that can't be funded from the debt facility so perhaps some market queries whether the growth is possible.

If the company makes $8.2m in FY21, I can see it being on 20x earnings or a market cap of $164 (~4x current).

duncan22
duncan22
Added 2 months ago

Takeover target

DickHunt
DickHunt
Added 2 months ago

Quarterly financials below (apologies about the formatting, figures are in $'000)

Some comments:

  • the gross margin ($) had a substantial increase in the Jun18 Qtr, vs previous quarters
  • the company had c.$(476k) of investing cashflows in the Jun18 Qtr. These relate to the cost of installing embedded networks (the infrastructure).
Quarter ending 30/9/17 31/12/2017 31/03/2018 30/06/2018
Receipts 4003 4693 5750 6588
COGS -2646 -3289 -4397 -4407
Gross margin 1357 1404 1353 2181
         
Staff -735 -686 -843 -683
Admin -843 -639 -1003 -1111
Interest -26 -36 -38 -39
         
Net Operating -285 23 -563 320
         
Debt 1294 1285 1275 1263
Cash 3225 2647 1550 1364

anthill
anthill
Last edited 2 months ago

Thoughts on DickHunt questions 1-Aug.

1. Why is the debt facility announced on Mar 2018 not being drawn down (per July 4C)?

updated...Yes, initial drawdowns were expected late March, but the facility is not even listed in the July 4C, and no notes about it or anything. 

The debt is for ‘capital infrastructure requirements‘, so it looks like they would need the requisite cash to be able to fund the additional COGS upfront, which is a little scarce...not sure

2. Is the increased cash gross margin ($2,181k in June Qtr) sustainable?

Gross Margin is the difference between Revenue (not receipts/cash flow) and COGS (specifically associated with the Revenue for the defined period). The quarterly statement that you are looking at is cash flow.  Receipts recognise cash received which will have been recognised as Revenue in the same period or possibly the prior period.  For the cash flow statement, the COGS will be cash flow for the quarter as opposed to when the associated revenue was booked (ie it could also be associated with prior period revenue).  Adding in the other operating costs the difference is ‘Net operating cash flows’ as per the 4C, which is different to the gross margin, which you will be able to see properly in the annual report.

The business is seasonal (see chart below from a quarterly from a while ago, don't know which one) and it looks like the payments received from the customer take longer than LPE have to pay their power provider. Hence the receipts are higher (from the peak summer period) and relatively the COGS have contracted – Autumn/Winter demand and a shorter payment cycle.  The reverse happens going into summer but is offset by the increasing total

Over time however the Revenue will rise in proportion to the GWh under management, and I understand that gross margin is relatively constant (~19%).

3. What is the company's liquidity and specifically will it need to raise capital.

Depends how fast it decides to ramp up.  If they use some of the $10m for investment then this significantly increases the GWh and will place extra demand due to the cash receipt lag described above.  There are a few inputs here needed to answer the question above that we don't have.  Alternatively they could wait until they have positive cash flow from existing operations to fund this.

DickHunt
DickHunt
Last edited 2 months ago

thanks anthill! My comments:

1. Why is the debt facility announced on Mar 2018 not being drawn down (per July 4C)?

New distributed networks need capex for the installation. So if they are writing new business where they hook up a strata to LPE, they need capex. My understanding is that only hard assets (eg meters) can be funded via the facility, not other costs (eg labour). So still a mystery. I have put a call into the company to ask.

2. Is the increased cash gross margin ($2,181k in June Qtr) sustainable?

Thanks for your corrections and explantation.

3. What is the company's liquidity and specifically will it need to raise capital.

Thanks for your reply. More specifically, my question relates to whether they need capital to achieve their stated goals on their current run rate. I understand that if they have a step change in their rate of installs then that will put pressure on their balance sheet. Hence my first question about debt finance.

DickHunt
DickHunt
Added 2 months ago

1. Why is the debt facility announced on Mar 2018 not being drawn down (per July 4C)?

2. Is the increased cash gross margin ($2,181k in June Qtr) sustainable?

3. What is the company's liquidity and specifically will it need to raise capital.