17-Dec-2020:  CCZ Equities Research: Energy One (EOL): Contigo and eZ-nergy growing international SaaS

Analyst:  Daniel Ireland, direland@ccz.com.au, +61 2 9238 8239

• Recommendation: BUY
• Target Price: 616cps
• Market Capitalization: $132m
• Index: None
• Share Price: 520cps
• Sector: Information Technology

• First half update:  Management has forecast 1H21 revenue and EBITDA of $13.7M and $4.1M respectively (up +46% and +127% on pcp) including a first half contribution from eZ-nergy (acquired June 20). Attributable to a strong performance from Contigo and eZ-nergy in Europe and a solid performance from the Australian business, EOL has exceeded expectations this half year. CCZ forecasts this will translate to circa $2M NPAT 1H21 ($0.4M pcp, +400%), attributable to scale benefits over D&A and lower tax rates in Fy21. For the full year we have increased our NPAT estimates from $2.9M to $3.4M NPAT in Fy21. The company is well positioned to grow in Europe, which is 10x the size of the Australian market, consolidating market share as the conversion from legacy (Microsoft Excel) to sophisticated software systems accelerates.
• European divisions exceeding expectations:  eZ-nergy and Contigo are demonstrating extremely strong growth due to a comprehensive product suite, enabling EOL to win contracts not previously attainable. Anecdotal research indicates industry conditions in Europe continue to support growth, with competitors also delivering strong contract wins. With an extremely strong integrated product suite and high recurring revenues (70%-80%), project wins continue to build EOL’s recurring revenue base. We expect going forward, EOL’s ARPU growth will be supported by the company’s low churn rate, with additional modules improving Lifetime Value relative to Cost of Acquisition.
• Industry transition to 5-minute settlement (5MS) creating domestic growth opportunities:  The Australian business continues to benefit from the move to 5-minute settlement, with strong demand expected by the mid-2021 calendar year ahead of the extended October 2021 deadline. With increased disruption to the energy grid expected (renewables, increased compliance requirements) energy generation has never been as volatile, and the business is expected to continue to benefit from enhanced product upgrades and 1-2 large implementations per annum.
• Valuation:  Given the strong prospects for the business and the traction of Contigo and eZ-nergy, we have increased our valuation to $6.16 increasing to 6x EV/sales valuation. Our forecasts have changed after EOL’s latest update and we now forecast EBITDA will be $7.5M FY21 (previously CCZ $6.8M, $6.5M EOL original forecast). The company looks well positioned to benefit particularly from the company’s enTrader module which is gaining traction in the European market.

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30-Sep-2020:  CCZ Equities Research: Energy One (EOL): Niche software with global ambitions

CCZ Analyst:  Daniel Ireland, direland@ccz.com.au, +61 2 9238 8239

Recommendation: BUY, Target Price: 556cps (Initiating Coverage), Market Capitalization: $104m, Share Price: 411cps ($4.11), Sector: Information Technology.

• Initiating coverage:  Energy One (EOL): is a niche supplier of Energy Trading and Risk Management (ETRM) software, used by energy generators, retailers, and traders within the wholesale energy trading market. EOL’s cloud based and on-premise software is used for physical energy including preparing bids, nominations of physical gas and electricity, energy trading for hedging purposes and proprietary trading. EOL’s software provides a complete solution to systemise all aspects of the wholesale trading process and is one of the largest independent ETRM vendors globally with 200+ installations across 17 countries.
• Significant profit growth forecast in Fy21:  as demand ramps for EOL’s software products in Australia and the integration of Contigo and eZ-nergy continues in Europe. The company is set to deliver strong organic revenue growth through R&D development and the acquisition of new customers domestically and abroad. With 50% share of physical trading volume in Australia, management are set to replicate the company’s domestic success in Europe, with estimated current <5% market share across the continent, we see significant upside in new customer acquisitions and cross-sell opportunities in an addressable market 10x the size of Australia.
• Industry transition to 5-minute settlement (5MS) creates growth opportunities:  The move by energy regulators globally to reduce settlement times will increase demand for software solutions that can process high volumes of data. The Australian market is ahead of most countries, with strong demand expected by mid-2021 ahead of the extended October 2021 deadline. Given Australia’s early adoption of 5-minute settlement, this functionality could be deployed internationally should Europe adopt similar energy pricing settlement where preliminary discussions are occurring, however no firm action has taken place.
• Investment thesis:  We look at other software businesses in highly specialised disciplines that trade at a premium to EOL and see upside to the current valuation. We see upside to the companies Fy21 earnings guidance $6.5M (CCZ $6.8M) with the consolidation of eZ-nergy for a full 12 months (1-month contribution Fy20) and organic earnings growth particularly from Contigo. Well protected from COVID-19, EOL’s long-term global growth opportunity and valuation makes this stock a highly attractive investment at the current share price.

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