Capital Raising - explains the recent run up in price. Always insider knowledge...

At least its a fair raising albeit disappointing that they put themselves in a position that they need to do it - The fully underwritten capital raising will be comprised of a non-renounceable non-accelerated 1 for 28 pro-rata entitlement offer (“Offer”) at an offer price of $4.05 per share (“Offer Price”).  

• EOL confirms that it expects to meet (or exceed) revenue guidance issued at the H1 FY2024 report.
• EOL has returned to profitability from January 2024.
• EOL is launching a fully underwritten A$4.3m Capital Raising to strengthen its balance sheet and has received credit approval from its lender National Australia Bank (“NAB”) regarding the extension of its financing facility to be executed prior to 30 June 2024. 

A lot of publicity following the Shell announcement and Ausbiz exposure - and a bounce on very low volume.

Until today there has been a large cross trade. Hopefully whoever wants out is out - I'd like to know who it was and if it was Regal or not.

First look 1H22 results look okay albeit on a statutory basis not so much. Expenses were higher than I would have thought.

The lack of one-off project revenue was a letdown given i thought there would be a backlog but seems like there's a solid pipeline.

EOL looks to be on annualised revenue run rate of $40M at 40% gross margin around gross profit of $16M. NPAT excluding some one off say about $6M for FY22. Current price definitely not cheap but plenty of tailwinds for future growth.

No idea how the market will react to this given EOL is so illiquid and then you have Regal as major shareholder.

What does Australia’s energy transition look like? (afr.com)

Some interesting quotes:

“There is plenty of analysis done that shows the grid can run without any gas at all, so that’s technically possible. However, we may always want to have some gas in the background to cater for peak demand periods when we are running short of other energy.”... "According to the AEMO road map, gas will remain part of the electricity generation mix through to 2050, but emissions would need to be offset elsewhere in the economy."

"Australia’s National Electricity Market (NEM) is one of the world’s longest interconnected power systems with about 40,000 kilometres of transmission lines and cables."... "The biggest challenge in the transition away from coal-fired power to renewable energy is actually getting that energy onto the electricity grid and to consumers."

"The grid must also be modernised to support a two-way energy flow to account for the growing number of households with rooftop photovoltaic panels (PVs) that are connected to the grid and distributing and selling their energy back on the NEM."

"A new wind or solar park in Australia produces energy at about $50 per megawatt hour, whereas recent wholesale prices have been around the $200 to $300 mark, Jotzo says."

Looks like slow progress at the moment, looks like its getting some attention in the media/regulators to address the issues.

AFR - France’s Neoen locks in financing for first stage of mega wind project as Australia falls behind renewables targets (afr.com)

Data released by the University of NSW earlier this week showed that while renewable energy generation in the National Electricity Market broke records in the December quarter of 2022, the growth in renewable energy generation slowed last year from 2021, and is well behind what would be needed to reach the 2030 goal.

Figures released by the Clean Energy Council in late November raised an alarm about the rate of growth in new renewables, finding that only one clean energy project reached financial close in the September quarter. This made the year ended September 30 the worst on record for new approved capacity.

Data from the Australian Energy Market Operator also shows that while a huge volume of new clean energy capacity has been proposed, only a relatively small amount so far has been committed, much less than the 44 gigawatts of new wind, solar and storage capacity needed to come online by the end of the decade.

Consultancy Rystad Energy estimates that Australia needs to start construction of about 4GW-4.5GW of wind, solar and batteries every year to meet medium-term targets, but in addition to broader hurdles around rising costs, supply chains and materials availability, community opposition is slowing progress on new transmission lines needed to connect the projects.

IEA Report - Renewables 2022 (windows.net) - Key quotes

• Renewables to overtake coal as largest source of electricity generation by late 2025. Solar PV to become the most installed power capacity worldwide by 2027.

Europe

• The European Union, the second-largest growth market after China, has had stable renewable capacity expansion in the past five years compared with 2010-2015, but its pace of expansion is expected to more than double during 2022-2027. While several EU member countries had already introduced ambitious targets and policies to accelerate renewable energy deployment before Russia’s invasion of Ukraine, since then the European Union has proposed even more aggressive goals under the REPowerEU package to eliminate Russian fossil fuel imports by 2027
• At the EU level, the European Commission’s REPowerEU plan released in May 2022 proposes ending the bloc’s reliance on Russian fossil fuels by 2027. Among other goals, the plan aims to increase the share of renewables in final energy consumption to 45% by 2030, exceeding the 40% previously under negotiation (EOL's European operations)
• Even before the energy crisis began, policy actions in 2021 were pointing towards a more optimistic renewable energy forecast for Europe, prompted by policy reforms to accelerate renewable energy growth to reach more ambitious climate goals.
• Europe’s renewable electricity expansion doubles over the 2022-2027 period as energy security concerns add to climate ambitions.
• Solar PV leads growth, followed by onshore wind, offshore wind, bioenergy and hydropower. Three-quarters of European expansion is concentrated in seven countries – Germany, Spain, the United Kingdom, Türkiye, France, the Netherlands and Poland. 
• For electricity, in order to reach the installed capacity needed to generate 69% of electricity from renewables by 2030, average annual net additions need to be 30% higher for solar PV and more than twice as high for wind. Faster acceleration of wind and solar PV would require EU member states to reduce permitting and licensing timelines, extend auction schemes with clear schedules, redesign auctions to reflect the increasing cost of renewables and their energy security benefits, and improve incentive schemes for distributed solar PV generation.
• Last year, the European Commission released its Fit for 55 policy package and proposed raising the targeted EU renewable energy share from 32% to at least 40% by 2030 to put the European Union on a net zero GHG emissions trajectory for climate neutrality by 2050. The final target is still under negotiation, but once it has been set, member states will have to update their National Energy and Climate Plans (NECPs) during 2023-2024 to reflect new national targets and identify support policies.
• By the end of 2021, some member states had already begun to raise their ambitions in anticipation of a higher EU target and had introduced policy and regulatory changes to accelerate the use of renewable energy sources. For instance, Ireland’s National Development Plan increased the targeted share of renewables in electricity consumption to 80% by 2030 (up from its current NECP’s 70%), and Italy’s Ministry of Ecological Transition proposed increasing the share of renewable electricity to 72% (up from 55% in the country’s current NECP).  Meanwhile, other countries continued to boost existing support. For example, France raised the size limit for commercial PV eligibility for feed-in tariffs and the Netherlands extended net metering. Outside of policy action, countries also began to tackle permitting barriers by simplifying procedures: for instance, Greece unveiled a digital one-stop-shop application. 

• For the EU electricity sector, expanding wind and solar PV power generation remains one of the most effective ways to reduce natural gas consumption.
• While these drivers indicate faster expansion in the main case, forecast upside potential is still high and depends on countries resolving pre-existing deployment challenges by simplifying permitting procedures, upgrading and expanding transmission and distribution networks, and providing long-term visibility over policy support for both utility-scale and distributed projects. In fact, accelerated-case modelling shows that the European Union could install over 30% more renewable energy capacity, the largest absolute upside potential of all key countries and regions

Australia

While grid fees and system costs impair distributed solar PV growth, state-level targets and PPAs propel expansion of utilityscale renewables With nearly 40 GW of new additions expected, Australia’s renewable power capacity is forecast to increase more than 85% from 2022 to 2027 thanks to statelevel auctions, incentives for distributed solar PV and corporate PPAs. This year’s forecast has been revised over 30% upwards from last year’s to reflect the announcement of new auctions, continued corporate power purchase activity to meet private sector decarbonisation goals, and new projects associated with renewable energy zones (REZs). With the federal large-scale renewable energy target (LRET) having been achieved in 2019, states have set additional renewable energy targets. The current government’s Climate Bill 2022 pledges to reduce carbon emissions 43% by 2030 from 2005 levels and achieve net zero emissions by 2050. This new law is expected to create an additional impetus for renewable energy growth. 

The accelerated case forecasts nearly 25% higher additions than the main case, with upside potential enabled by more state-level auctions and faster-thanexpected commissioning of REZs. Furthermore, additional coal-fired plant retirements could allow for the deployment of new large-scale renewable energy installations paired with battery storage. For distributed PV, the continuation of high wholesale and retail prices could encourage greater investment. In addition, renewable additions from captive wind and solar PV capacity associated with hydrogen from renewable energy could add over 6 GW of additional capacity over the forecast period.

Some sizeable cross trades going through at the cap raising price.

I wonder how this plays out for EOL if this becomes a trend, as looks like it might be in Europe.

Victorian Premier Daniel Andrews’ plan to “bring back” the government-owned State Electricity Commission to reverse the decades-long privatisation of Australia’s energy market will chill private investment and hurt ordinary investors and workers, the CEOs of Woodside Energy, Alinta Energy and Australian Energy Council warn.

The state Labor government said it would spend $1 billion to develop its own renewable energy assets, as it announced tough new emissions targets that are likely to end coal power generation in the state by 2035 - earlier than expected. The state would invest directly to control renewable energy projects, including wind and solar, with a focus expected to be on its ambitious offshore wind targets.

The first 20 minutes has a neat summary of the investment strategy - Capital Raising Presentation | EnergyOne - the last 10 minutes is also good to the overview of the status of the current european market.

Reached out to IR and received a reply from the CFO regarding increasing the retail entitlement. It looks like there will be the ability to apply for 50% more though no increase:

"The Rights Issue at this point will remain unchanged however you do have the ability to apply for your entitlement + 50%. We appreciate getting shares is not easy which is a driver of us getting more institutional holders on the register to aid liquidity"

Hard to argue with their past execution. EPS has grown from 0.02 in 2016 to 0.13 in 2022 or 36% p.a CAGR.

Obviously some acquisitons and debt now too.

I thought it would be worth looking at the European 24/7 competitor GSML. Company website here - GMSL - Home

Glassdoor has mostly postive comments beside grumblings about lack of career progression. Not much insight into the company and no issues raised about the tech stack or managment. Only 17 reviews too so not sure to take too much away from that.

The employee reviews on their website are quite dated too.

Looks like their hiring a few developers (source from Indeed).

Seem to be using cloud with AWS according to the job description so assume modernish software too - not all desktop.

Technologies

The technologies we use for development include:

• C#, NUnit
• ASP.NET, MVC
• React, Javascript
• SQL Server, Oracle, DynamoDB, PostgreSQL
• AWS
• VMWare

Comapny Description

GMSL is a small company based in Cambridge, UK. We have two offices in Cambridge (our head office and a fully equipped DR facility a few miles outside the city centre) together with an office in Birmingham, UK where we carry out the CVA function on behalf of the UK gas industry.

The company was founded in 1996, at the start of the Network Code daily balancing regime in the UK, and since 2002 has been 100% owned by Fluxys SA, the Belgian gas network owner and operator. We now have over 95 staff providing operations services and software to gas and power shippers across the European gas and power networks.

The company began developing software for use in-house to enable us to provide these services and our range of products has grown as we have expanded into new networks. We continue to rely on our own software to support our operations business and that of our clients.

GMSL continues to focus on gas and power operations and related software. We now work for around 50 operations clients and have over 80 software licensees.

What is interesting is they post their client list - GMSL - Client list on their website. Wonder what the overlap is between EOL and themselves if any.

Quite a few investment banks/exchanges - they also seem almost all focused on gas too.

They look quite small - I wonder if EOL could even acquire them? I assume there might be a bit of regulator pushback if they did. Founder's have been there about 26 years but not old but not overly young if they wanted an exit - private held.

Day for the review - trading halt this morning and cap raising.

Feathertop Capital Feathertop Capital (@FeathertopCap) / Twitter & Aden (@ajb_02) / Twitter also did a good overview available here EOL writeup.pdf - Google Drive which I hope he doesn't mind me linking too.