Key points

• revenue increased 23%
• NPAT dropped from $1.2M to loss of $508k
• organic growth is strong. They used to rely on one or two big projects per year. This is changing as they get cross-sell opportunities in Europe. Customers starting to see them as an integrated provider of multiple solutions
• restructure will save $2M/year starting FY25
• Labour costs increased substantially because salaries grew substantially and they wanted to invest for growth. Salaries were high in Australia because of the volatility of energy prices and profits on offer to other market participants in trading and operations.
• learnt a lot from the STG 'mooted' acquisition. Close scrutiny of business helped them identify some changes to make.
• Full year revenue is forecast to be $51M with $45M recurring.
• Confident of return to material profitability but no forecast given.

Their summary of costs

On a statutory basis EBITDA of $3.3M was $1.7M lower than the comparative period. Whereas revenue was up $4.6M (on pcp), we experienced additional costs in the half, primarily related to:

•  Investment in both existing and new staffing of $3M.
•  Acquisition costs related to the mooted STG transaction of $0.4M
•  Restructuring costs (explained below) of $1.1M
•  Cyber incident (non retrievable) costs of $0.3M.
• From a profit / (loss) perspective, additional finance costs of $0.2M and depreciation and amortisation of $0.3M impacted that result. 

Whilst the result is unwelcome, this hasn't changed my thesis or confidence in management. I just read the Half Year Reports and accounts. It carries the same, usual, frankness in their view of the business. It's not a glossy presentation. It is a CEO report. A few pages of text providing some detail. I'd encourage anyone interested to read it.

HELD

There is some interesting insight offered by the CEO presentation to the AGM today.

A year ago the board was advised they could get $6/share so they embarked on a sale process. They ended up rejecting the offer and it has had the effect to divert management attention in the year after they had a major expansion into Europe and it will impact this years result. They will announce the impact with the 1st half results in Feb.

From the transcript.

NBIO Process

As announced, the Company has experienced inbound interest in a variety of corporate transactions over recent years. About a year ago the Board formed a view following advice from advisers that we could conduct a successful sale at or about $6.00 per share. Therefore, we embarked upon a sale process. The process, which was all consuming for our small group of executives and the Board, was undertaken while the company embarked upon our innovative expansion of our global offering of our SAS business in the northern and southern hemispheres.

The result of the sale process was disappointing with an offer emerging of $5.15, rejected by the Board last month.

Looking forward

The distraction of management time from running the business to dealing with due diligence etc. was very costly and the outcome was further impacted by the hacking which took place during August due to the need to protect the customer and employee data and manage the Company’s response. Now, with certain changes to management, we have resumed normal business.

The distraction of the sale process and set-back will have adverse consequences for this years result compared to our initial budget but the Board has confidence in its core management and market position. We will resume the previous upward trajectory, the benefits of which will continue to become apparent over the next 12 months. The timing of the attempted sale was unfortunate and costly with the consequence that there will be no dividend for 2023.

The Board will consider providing an FY24 outlook after the release of the 2024 1H results in February.

EOL seem to be making progress. Announcements over the past 6 weeks have said

• Energy One Ltd (Energy One) has entered into a long-term framework agreement with Shell Energy Australia (Shell) to use Energy One’s solutions for its growing portfolio of battery, demand response, renewable and other generation assets.
• They are also in have a POC with a large European energy generator with a mid-year decision about whether they are successful.
• They have their first European customer using Australia as a night shift
• Website and sales capability have been improved now they have their 24/7, Euro/Australia service model
• Have maintained their full year guidance even though half-year result was lower than expected. FY23 of revenues increasing 37% over FY22 to be in excess of $44M, and EBITDA growing 33% over FY22 to $12.5M and re-iterate that outlook.

They are the positive aspects.

On the risks side

• The really large acquisition is reported to be going will but it is still early days
• Debt is high because of acquisition
• Intangibles are high because of acquisition and history of capitalising software dev costs
• They are reporting EBITDA so they can exclude higher interest and amortisation which will impact NPAT

Introduction

What does the company do?

We facilitate the entry of new generators into the market, enabling them to monetise their energy and assist our existing customers to make the transition to renewable energy without interrupting current operations.

Provide software and services for selling energy into markets.

“Energy One has cemented its position in the 24/7 operational energy services market being the number two provider in Europe and wit h the acquisition of CQ energy the number one provider in Australia” ; said Shaun Ankers, Group CEO. 

None of our traditional competitors are providing 24/7 operational services and to this end we believe we have cemented a strong first mover advantage.

Combining our software with a premium service offering gives us an enviable position in facilitating the entry of renewable energy into national electricity markets

Services to generate high quality revenue with ~60-80% of revenue recurring

For example when a new grid scale battery is built they operator may contract out the management of dispatching its capacity into a national energy market.This is done via a contract for service and can be for a fixed term of 3,5 or 10yrs which is then renewed annually on an evergreen basis.This is important considering these assets typical have useful lives of 20-30 years.

How does it make money?

1. Recurring revenue on software for suppliers, traders and retailers in energy markets
2. Project revenue )1-2) projects per year - about 15% of total revenue
3. About to launch business outsourcing model where they provide the 24x7 back office (ie people/services)

What are it's future prospects?

Very strong. By 2031 Australia needs to triple its current electricity production (Aus Climate Council report). Europe adds to its grid each year about the same current capacity of the Aus grid (Energy One CEO).

In AUS they have 50% of the market and grew revenue 16% last year without any major projects.

In EUR they have less than 10% of market.

EOL research has shown that In Australia (since 2015), 94% of new electricity generation has been via renewables (wind, solar etc) and Europe is similar. They claim that 87% of the added capacity in AUS has been from new entrants not aligned or part of big industry players. They argue that the large number of new, smaller players is a step-change in the market and these players will want the fully outsourced model because they aren't big enough to have their own 24x7 trading desk. EOL say they have first mover advantage for this new market.

Is the company experiencing headwinds or tailwinds?

Tailwinds

Has the company achieved growth organically or through substantial acquisitions?

Acquisitions

Whilst there has been good organic growth, acquisitions have really kicked it along because customers are so hard to win.

Cash flow positive?

Yes

What is the debt/equity?

90%

Does the company only rely on its own revenue and not grants or capital injection?

Yes

Is the balance sheet clean without any significant intangibles (eg capitalised software or goodwill)?Comments

No

A lot of intangibles. Given their high debt, If their revenue drops the lenders can come knocking (bulldozing)

Board members

NamePosition Date appointed

Ian FerrierChair 1996

Shaun AnkersCEO 2010

Has succession been well managed without sudden change in CEO or Chair?

Yes

Does the board appear trustworthy and competent?

Yes

Do the board members have significant share holdings?

Yes

About 50% of shares. 27M shares on issue.

1. Ferrier (Chair) has 7M (25%) himself.
2. Ankers (CEO) has 1M shares.
3. Vaughan Busby (NED) 4M shares

Have capital raisings been fair to shareholders?Unsure

Have acquisitions been well executed and accretive?

Yes

Well managed, the risks are low. High debt and intangibles mitigated by high recurring revenue. Interesting that EOL don't carry market execution risk because they only carry out trading rules authorised by their client and encoded as rules in their software, automated rules engine.

The moats are very strong.

• regulated market
• clients need a high level of trust in the service provider because that is their source of revenue. They need to trust that EOL will reliably execute the clients rules. CEO said this trust is hard to build in the industry
• clients are very sticky

Interesting that they have flagged an equity raising because in their recent investor update the chairman said the board is very cognizant (wary?) of dilution. In the same update the chairman was also mindful that their debt was 'manageable' given on their highly sticky customers and recurrent revenue. Their debt has increased because of one major acquisition last year.

My guess is that they are buying something else and don't want to go into any more debt.

https://www.energyone.com/investors/investorpresentation/