Consensus community valuation
Energyone provided an FY24 result update. Optically it looks terrible thanks to very weak 1H ( that was already known to the market)
Now if we look at the result and compare half-on-half
If we look at the expenses, 1H shows some one-off charge ( 1.8m worth). Although Salary cost increased to 28% in FY24 compared to FY23
Debt has been reduced from 22m to 16m ( they did capital raise in 2H and as a result Share count has increased from 27m to 31.5m)
It is roughly trading at 135m market cap
with 52m Revenue ( 89% recurring revenue) in FY24
There is a con call tomorrow ( unfortunately, I won't be able to attend)
FY25 guidance or commentary will be important for the valuation.
Hopefully, all one-off will be behind them, 1H FY25 should be much much better than 1hFY24
Energy One has been hit by a cyber attack.
ASX announcement:
Details are rather thin. Is this a loss of customer data, or has it impacted the operations of clients? Depending on the severity of things, it could mean a knock to reputation.
We'll have to see what the investigation turns up. Seems like it's still an ongoing issue.
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.
FH23 a bit lower due to costs, imo. company talks about some delays in large projects and looks like large capability build for 24/7 trading pushing costs up. the financials not too bad versus some other micros but benefits kicked down the track which may disappoint. company increased TAM (its huge) and also mentioned US acq possible for the first time but not soon. meeting 10am tomorrow. disc held as spec position
sorry--my 6 month rev (lhs)/pbt/cfo (grey) --note widening of rev and the other lines recently due to capacity build
Interesting this company has not had any shares sold short in the last 12 months- except for a fat finger short position of 2,110 shares taken out on 29 December and closed the next day. 
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."
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 really enjoyed listening to the recording of the $EOL Deep Dive. I have been following it for a while (ever since Claude Walker put it on my watch list professing it to be his "Stock to Change Your Life"eary last year.) All things energy are the core of my "wheelhouse", although currently I hold no energy stocks, but have enjoyed great gains over the last 2 years, offsetting some of my other losses visible here to all!
@Strawman opened the deep dive by summarising $EOL from revenue growth 2017 to 2022 and outlook for 2023. He rightly noted that there have been a number of acquisitions. This finally prompted me to attempt an analysis of the impact of the acquisitions, as management have consistently stated how much revenue (and EBITDA) contribution each of the 4 acquired businesses was expected to make in the first full financial year after closing.
In constructing the table below, for each year I taken Revenue and Other Income, and from that listed the contribution of revenue from each acquisition in its first full financial year, as announced on deal completion. Note that I have not made any corrections for the impact of FX movements between announcement and the FY results. So it is a ballpark analysis only.
Furthermore, I have kept the contribution of each acquisition to the 'Acquisition Contribution" total constant in subsequent years. This means that in the second full financial year after acquisition, growth in the acquisition is deemed to contribute to organic growth.
Table: Analysis of Organic and Inorganic Revenu Growth for $EOL (A$000)
I have then in the rightmost two columns calculated the revenue CAGRs. The one I place most significance on is the period 2019 to 2023 (Forecast numbers), as these are the most recent 4 years where Year 1 is purely organic. The reason for doing this is that you often get big CAGRs when you start from a very small revenue base. It is a trick growth company CEOs are adept at doing ... go back far enough and your CAGR is infinite!
$EOL has over the period by my estimation delivered an organic revenue CAGR of c. 10%. I will be looking for evidence that they can leverage the acquisitions to drive higher revenue growthin future. For all the talk of industry tailwinds, their organic growth by my estimation is modest.
One reason I do not hold $EOL is that it is unclear to me whether they will achieve strong growth. My understanding is that the market for energy management software solutions in competitive. It was 10+ years ago when I was a "buyer" and I have no reason to believe that has changed. Claiming "15%" (UK) and "less than 10%" (Europe) market shares does not in my mind demonstrate a strong starting position. (Question for managment meeting: How are they measuring market share?)
I will expand on some of these points further, connecting to the discussion and questions from the "Deep Dive".
Big Customers v. Small Customers
The Deep Dive discussion debated $EOL's customer mix, and the role of large and small customers in the future. As discussed, existing customers in a market are one criterion considered by prospective new clients. In Australia, $EOL has strong credentials with AGL, Energy Australia and Alinta Energy among the client base. The European acquisitions have also brought some big customers into the portfolio: Centrica and SSE in the UK and EON (Europe or UK?) as at early 2021. There will be more as a result of the eZ-Energy and Egssis acquisitions. We don't know how many of these customers have multiple products - this is important.
For me, success is all about the ability to acquire new large customers organically. I would see newsflow on this as a positive BUY signal, and I am waiting for it.
What is my obsession with big customers? Simple - to win in energy you have to win these. True, during the energy transition, many smaller players and new market entrants are going to build A LOT of standalone energy assets (wind farms, solar farms, battery installations, pumped hydro, peaker plants etc. etc.) and we will continue to see the entry and exit of suppliers/retailers as market fortunes ebb and flow. But energy is a scale game. This is because medium and large players in any market will over time acquire businesses and individual assets of the new entrants and developers. This is how competitive (i.e. open) energy markets have evolved. You need medium and large customers in your customer base because they will do the lion's share of acqusition and owns the lion's share of the addressible market.
If the acquirer is a new market entrant, then they might adopt the systems used by the target, otherwise they are likely to impose their systems. For example, Shell recently acquired ERM to enter the Australia electricity supply market as part of its global strategy to transition from hydrocarbons to electricity. As this was one of the early moves by Shell of this kind, it will be unteresting to know whether they adopted $ERM's electricity trading systems. I expect they will have for some, but of course Shell has existing and developed systems for its gas, LNG and oil trading. I've never seen the $EOL promotions use Shell or ERM badges, so that's a key one to win in Australia and globally! Shell will in time become a big global electricity generator, distributor, trader and supplier.
Pricing is clearly also a scale game. I expect $EOL's pricing will be driven by numbers of products (x-of-12), number of seats (licences) per product, and potentially even number/scale of assets managed perhaps measured by MWh, (Question for Management Meeting - What is the Contracted Revenue Model?). If you go into the trading room of one of the large utilities, you'll find a large open plan space with traders and analysts, including the operation team that works shifts, 24/7/365. One large utility with have 10 to 20 or more times the revenue opportunity of a smaller asset developer. Furthermore, asset developers will often contract all the offtake to one of the integrated players via a PPA (power purchase agreement), in which case they are unlikely to use any/many systems at all. So tracking the number of new energy projects, while an indicator or market growth, perhaps overstates the market opportunity for $EOL.
If we think of $EOL as an early stage player aspiring to be the $WTC of the energy industry, then we just have to look to the kinds of metrics that $WTC touts: e.g. 41 out of 50 of the world's largest logistics firms are customers.
So for me, big customers are what it is all about.
(Note: this contrasts to other enterprise software providers like $XRO and $ELO, where the market for SME enterprises is huge and measured in millions. Industry structure in energy is different.)
One area that I'd like to understand better is the contract energy trading services model. This is a niche which probably only makes sense for small and medium size customers, as big customers are likely to do the work in-house because it is a core capability. It will be interesting to see what growth the CQ Energy acquisition can drive in Australia. I am unclear how material this can be.
It would also be good to understand the extent to which existing customers grow revenue over time. I wonder if we could persuade $EOL to adopt cohort revenue reporting, as many of our favourite SaaS companies do?
Conclusion
$EOL is a small player in a big global pool. The portfolio of products is impressive and should position them well to compete. But at the moment, I don't see a compelling growth investment proposition at the current valuation.
I am closely monitoring:
- Organic wins of new large customers, particularly in Europe
- Evidence that revenue synergies from acquisitions lead to an uptick in revenue growth. Organic growth of 15% p.a.+ up from 10% CAGR estimated would be a good start
- Better understanding of the potential of the contract operations service opportunity, so will tune in to future results calls when I can
- Evidence of better capital management. Given their global aspiration, paying a dividend now is just plain dumb, when you have to go cap in hand for more capital. (If they have advisors on this, they should change them!)
I am minded to agree with @PinchOfSalt 's bear case valuation of $3.00 ballpark. I'll add mine when and if I get to it.
Disc: Not held in RL and SM, but watching closely.
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.
In FY2017 the Energy One group was joined by pypIT a business platform that is responsible for facilitating the transmission of 40% of Australia’s gas through pipelines. (This 40% figure is still quoted on the EOL website currently).
No break down in annual reports indicating revenue or growth. So it would seem to be a steady revenue stream in a fairly tightly held market with no obvious signs of growth other than through acquisition and expansion of the overall market. One would imagine that it is also sticky and unlikely to experience churn, disruption permitting.
The Gas market is expanding see below "Australia’s Gas-Fired Recovery Plan"
Dave Flower Product Manager 6yrs and 16 Yrs with Sydac Pty Ltd acquired in 2016 and BHP IT before that. Works out of the University of Adelaide integrating pypIT into the EOL suite of products.
pypIT acquisition ($1.50M) was financed entirely with cash reserves. One Limited completed the acquisition of the pypIT software business from Sydac Pty Limited on 25 August 2016 for the acquisition price of $1,500,000.
pypIT business continues to serve gas pipeliners and their customers in the evolving wholesale gas market, performing vital business transactions enabling users to effectively and efficiently transport gas.
For the operators of gas pipelines the need to receive trade orders from their customers is a mission-critical activity - as is the scheduling, messaging, reconciliation and settlement (billing) of those shipments. pypIT is the largest independent platform in Australia serving 40% of the country’s bulk gas transmission. As such it used by a number of Australia's blue-chip infrastructure companies.
pypIT is a business providing software and services to Australia’s major gas transmission gas pipelines. Australia’s major energy companies utilise gas transmission pipelines to fulfil their end use or retail gas supply requirements. The pypIT software allows customers of gas (gas shippers) to place order nominations onto the pipelines for the transmission of bulk gas, to have those nominations scheduled and to receive and settle invoices for transportation. It is used by major pipelines located in NSW, Victoria, SA and WA accounting for approximately 40% of Australia's domestic gas flows
Overview of gas markets. Detailed information here. East Coast and West Coast and Northern.
https://www.aemc.gov.au/energy-system/gas/gas-pipeline-register
Australia’s Gas-Fired Recovery Plan
The government’s Gas-Fired Recovery agenda supports energy reliability, security and affordability to stimulate Australia’s economic recovery, enable industry growth and support Australian jobs.
This plan focuses on 3 key action areas:
- unlocking gas supply
- ensuring efficient transportation
- empowering consumers.
The government committed $50.3 million in funding in the 2022-23 Budget under the Accelerating Priority Gas Infrastructure measure. This measure includes investment in:
- Seven infrastructure projects that support National Gas Infrastructure Priority (NGIP) priority actions, for early works support, and
- Feasibility studies and options for CO2-carrying pipelines from major gas and industrial hubs to prospective sites for carbon capture and storage.
This is in addition to the commitment of $58.6 million in funding in the 2021-22 Budget. The 2021-22 Budget measures were designed to enable our gas market to continue to accelerate Australia’s economic recovery and guarantee our competitive advantage in key industries. These measures included:
- The release of the National Gas Infrastructure Plan: Interim Report
- $38.7 million of early works support for critical gas infrastructure projects
- $3.5 million for the development of a long-term Future Gas Infrastructure Investment Framework
- $4.6 million to develop initiatives that empower gas reliant businesses to negotiate competitive outcomes, which includes developing a voluntary standardised contract framework with industry
- $6.2 million to design, consult and implement reforms to continue accelerating the development of Wallumbilla as Australia’s Gas Supply Hub
- $5.6 million to develop a further National Gas Infrastructure Plan for 2022.
https://www.energy.gov.au/government-priorities/energy-markets/gas-markets
Competitors
https://www.gastrading.com.au/about-us
Gas Trading Australia Pty Ltd (gasTrading) was established in 2007 to assist in the smooth and efficient operation of gas sale and purchase contracts. The increasing cost of natural gas, and the reduced flexibility of gas contracts, has made the management of these contracts a vital part of corporate planning for any company which uses natural gas.
Gas Trading Australia Pty Limited (“gasTrading”) has operated in the Western Australian market for over 10 years and is regarded as the premier gas supply manager in Western Australia, employs 12 expert staff members to manage the gas supply of its clients; has a large Perth presence and an established Melbourne office; has over 300 TJ/d of gas under management each day; provides Gas Supply Management Services to 30 clients across multiple States and Territories and across various industries including mining, power generation, manufacturing and gas production; manages gas supply on all Western Australian pipelines, the Amadeus Gas Pipeline, Northern Gas Pipeline and the Carpentaria Gas Pipeline; broad and diverse transport position in own right; and is the operator of the gasTrading Spot Market:
A need to manage the under and over supply positions of clients led gasTrading to develop a Spot Market. By offering a platform for the sale and purchase of natural gas between clients, potential win-win outcomes were realised. The gasTrading Spot Market has grown considerably since its inception in July 2009. Almost every shipper on the major pipelines in WA has now contracted in some way to use the gasTrading Spot Market.
- By the middle of each month, Sellers provide gasTrading with an indication of the gas volumes they anticipate they will have available for sale for the next month and the minimum price they will accept for that gas.
- gasTrading aggregates the volumes of gas available for sale and, in the middle of the month, sends to all interested parties an Invitation to Treat setting out the anticipated Available Gas for each day of the next month.
- Parties interested in purchasing gas in the next month are invited to respond to [email protected] with an Offer or Offers to Buy. Offers to Buy must specify a volume of gas, typically quoted in TJ/d, the days on which the gas is required and the price the Purchaser is willing to pay for the gas. Purchasers are encouraged to bid a price that reflects the ‘value’ of the gas to them
https://www.gastrading.com.au/spot-market/how-it-works
SGM Trading was founded by Brendan Dillon who has been operating within the East Coast Gas Market for over ten years and has an in-depth understanding of each of the markets and how they influence each other. We work with gas producers, retailers and industrial gas users to manage long and short gas positions on their gas supply or demand positions.
EPS growth ~ 5% down EOL Could be in the right market ..Government Policy Electrifying all things.
Total liabilities / Total tangible assets: Debt/ Equity has increased so less profitable while the Debt is high.
Should be able to Leverage the offering scale up ect.
Australia
• Australian revenue up 6% despite drop in project revenue
• However, organic ARR grew by ~16% in the year.
• Recurring revenues were up 13% • EBITDA margin remained strong (up from 31% to 32%).
• Good sales pipeline. Need to sign 1-2 projects each year (20% project related revenue)
• In June 2022, we welcomed CQ Energy (Adelaide) to the Australian business group
• CQ contributed $1.2M revenue, based on 2 month’s income
This was timely given our current deep dive...
Energy One released their results for FY22. From their release:
Overall a solid result given that this was more a year of consolidation for Energy One as they bed down several acquisitions made in late 2021. They are positioning themselves to be the leader in the energy market and have stated that they will have first mover advantage with the move towards a Software-With-A-Service (Swas) model.
Guidance for FY23 was also given:
- Revenue = $44m (37% increase on FY22)
- EBIDTA = $12.5m (33% increase on FY22)
There will be an investor briefing on Thursday 25th of August at 10am to discuss the results.
Disc: Held IRL and on Strawman.
The management / board of Energy One has a significant holding in the company of roughly 50%. See approximate holdings below based on TIKR data and last annual report. It wont be 100% correct but gives you a good idea. I will update when the next report gets released (which should be soon). I assume Guy Steele now has a holding too after being appointed as CFO and Company Sectary on 28 JUN 21.
One potential concern of this structure is that this group can hold a significant amount of power and can be less friendly to smaller shareholders than they would otherwise be, even if unintentional. Looking at the Investor page of the website and the last annual report it is very much a case of the bare minimum which would support the fact they are focussed on larger shareholders.
This is something to keep in mind but to counter this there is an interesting story from Claude Walker in the Baby Giants podcast which implies management conducted an SPP for smaller shareholders after receiving feedback from smaller shareholders who were unhappy about how they were treated in a capital raising. I have not been able to confirm but is reassuring from a small shareholder perspective.
As to the team itself, Ian Ferrier is an impressive businessman with significant experience across various businesses and is Chairman of the Goodman group and co-founder of Ferrier Hodgson. Interestingly he holds a very small parcel of around $210K of Goodman Group shares as his only other holding listed on TIKR so he has significantly more of his wealth invested in Energy One
Vaughan Busby holds a few other directorships including Chairman of Scidev and of Netlogix. He is also a non executive director of Energy Queensland which is the state government entity that owns the Energy distributors (Formerly Energex and Ergon) assets.
Shaun Ankers was appointed CEO in 2008 so has been at the wheel for a considerable time.
Clearly this group have skin in the game and are very focussed on seeing it perform well and having shareholder interests (hopefully big and small) at heart.
Here is a plan view / overview of EOL
EOL head office
HEAD OFFICE CONTACT INFORMATION
address
Level 13, 77 Pacific Highway, NORTH SYDNEY, NSW, AUSTRALIA, 2060
Telephone(02) 89162200
Fax(02) 89162200
Web site
Share registry
SHARE REGISTRY CONTACT INFORMATION
share registry name
LINK MARKET SERVICES LIMITED
address
Level 21, 10 Eagle Street, BRISBANE, QLD, AUSTRALIA, 4000
Telephone1300 554 474
Strategy
6th June 2020
Extraordinary General Meeting Chairman’s Address
The Covid-19 pandemic has had a significant impact on all of us for over two years and we are now starting to see a return to pre-pandemic life. Whilst the threat from Covid may be receding some elements such as hybrid work patterns means the workplace has fundamentally changed moving forward. The removal of restrictions on movement has also provided us with the opportunity to meet our customers and acquired businesses face to face. Whilst video conferencing has proved effective for many aspects of business some elements continue to benefit from a more personal experience.
CQ Energy in Australia
The acquisition of CQ Energy in Australia is a significant and important step towards realising our vision of being a leading provider of software and services to the energy sector in Australasia and Europe / United Kingdom. CQ provide specialist operational services to particularly renewable generators that has EOL well positioned to take advantage the global renewable transition. Further detail with respect to CQ can be found in our investor presentation available on our website at the investors page. The acquisition of CQ together with Egssis, and the existing eZ-nergy business also lays the foundation for 24*7 global operational services. The 2022 financial year has seen the business continue its profitable operation with performance on a normalised basis within the ranges communicated to the market.
Reaching completion of the CQ acquisition took a month longer than expected, as a result, we now anticipate revenue for FY22 circa $AUD 31.4m (FY21 27.9) and EBITDA circa $AUD 9.2m (FY21 8.1). These figures are on a normalised basis, excluding one-off and re-structuring costs associated with acquisition.
Additionally the management led by Shaun Ankers / Ian Ferrier are proven in this space over a long period with 53% plus insider ownership .
Energy One released their results for 1H FY22 yesterday. From their release:
Revenue was fairly flat and management have stated this was due to covid travel restrictions minimising their ability to win big clients. I see this half as a half of consolidation for the business as they try and bed down their recent acquisition of Egssis and their entrance into the European energy markets. CQ was also acquired although this will be reflected in the coming half year.
EOL operate in a sector with large tailwinds with the transition towards green energy. They have mentioned that they will be operating as a Software-with-a-service model (Swas) once the CQ acquisition has been completed so it will be interesting to see if they will be able to scale well given the tailwinds afforded to them. Management have stated that they will continue to "profitably grow" but I expect their results to be a bit lumpy over the course of the next few halves/years.
Guidance for the FY22 was given:
- Revenue = $32m
- EBITDA (excluding any more acquisitions and one off costs) = $9.5m
Disc: Held IRL and on Strawman.
Energy One Limited ASX:EOL
- MC $173.6m, 26m shares
- Provides platforms for energy generators, retailers, producers, shippers, large scale users and traders to manage their entire wholesale energy trading portfolio.
- 4 main solutions:
- Energy Flow - automate/manage business process and integrate systems
- Energy Offer - Bidding/offering, dispatch, logistics solution
- EOT - front, middle, back office solutions
- NemSight - real-time presentation and historical analysis tool
Australasian (Au/NZ/Sg) operations:
- 44% of revenue in FY21. EBIDTA margin 31%. Growing organically.
Acquisitions:
- Acquired Contigo (Europe) - which is an energy trading and risk management (ETRM) software in 2018.
- Acquired eZenergy (France) in June 2020 - energy trading and software/services to European customers.
- Together these two European acquisitions contributed 54% revenue in FY21. So far management has demonstrated ability to identify synergies between acquisitions - eg offering bundled solutions to customers / cross selling.
- Acquired Belgian energy trading company EGSSIS (similar to eZenergy) in October 2021 for A$6.8m cash + equity.
Management:
- CEO Shaun Ankers - 990.5k shares
- Chairman Andrew Borwick - 500k shares
- NID Ian Ferrier (former chair of Goodman Group) - 7m shares
- NID Ottmar Weiss 1.2m shares
- NID Vaughan Busby - 4.1m shares
- Board owns slightly over 50% of shares issued. Director selling in September 2020 to improve liquidity of shares, and further selling in December - March 2021. They still hold very significant amount of shares.
I like:
- Management with skin in the game - acquisitions have been largely synergistic, cash producing and together they help EOL become the one-stop shop for energy traders.
- Scalable SaaS business with low churn rate (3-4% churn last 3 years).
- Long runway for growth - CEO pointed out European operations form 5% of market share across Europe. Also previous mention of expanding to US.
- High gross margins 40+%, strong cash generation (growing too)
- No debt, strong cash reserves - though they have used this to acquire EGSSIS in October 2021.
- Ongoing R&D to improve their solutions (not sure what % of revenue goes into this)
Not so nice:
- Quite expensive at the moment, 18x EV/EBITDA.
- May take some time for EOL to integrate their new acquisition
- Potential European energy crisis - https://www.forbes.com/sites/arielcohen/2021/10/14/europes-self-inflicted-energy-crisis/?sh=aa81a4a2af3a , this may affect EOL's customers.
- Technically, chart showing some weakness in the short term.
Disclaimer: No position at this stage.