Energy One - First half 2015

The company expects to reach the closing implementation phases of its major projects (Alinta, AGL) by 30 June 2015, or by 31 December 2015.  The AGL implementation of EnergyOffer has gone well, with interest now being shown from potential new customers.   The company is opening up a Melbourne office which typically indicates existing and prospective clients want representation locally (Alinta, AGL are Melbourne headquartered). 

The company are guiding for a second profit before tax ("PBT") similar to the $391,377 generated in the first half of 2015.  The 2015 revenues and profitability are being buoyed by professional services associated with the implementation of these large projects.  This is highlighted by operating revenues rising 174% from $870K to $2.395 million in the first half 2015.  But at the same time employee costs were up 105% from $673K to $1.384 million, while consultant costs rose from $164K to $364K.  The thinking here is the company can downscale its employee and consultant costs should some of this lumpy implementation work dry up in 2016.     

Using the current 45 cent share price, net cash of $1.84 million and the guidance of similar profitability in the second half of 2015, suggests the company trades on 1.17 times prospective sales, 3.1 times recurring revenues, 7.91 times Enterprise value/EBIT and an untaxed price to earnings multiple of 10.26 times.  

These above investment metrics are fine and support the existing share pricing.  Investors however will get a more immediate benefit through a well executed acquisition, with the guidance here being the company seeks “appropriate acquisitions, as these opportunities arise”. 

The market conditions for electricity retailers, gas retailers and their associated green credit trading doesn't feel particularly conducive to capital investment in software.  It appears however this historically lower levels of industry profitability combined with potential government and corporate asset sell-downs is the current driver of investment in software systems.  Better systems also promote better compliance which may also be a driver for sales.  I'm also hopeful that large EnergyOffer installations like the one in AGL will ultimately drive product uptake from counterparties of AGL.   There is also the potential for EnergyOffer clients to be up-sold products like EnergyOne Trading and EnergyFlow making them more valuable clients.      

Fingers crossed something comes along here and in the meantime 2015 is unwritten by these large deals done in 2014! 

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