# EPW - ERM Power



## System (10 December 2010)

Founded in 1980 as a specialist energy advisory firm, ERM Power has grown into an integrated energy company with businesses spanning electricity sales, generation and gas procurement.

ERM Power is one of Australia’s largest private energy companies and is one of the leading electricity suppliers to the business customer market in Queensland and a growing presence in other states.

http://www.ermpower.com.au


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## DJG (22 October 2013)

What's everyone's thoughts on EPW sitting back on this support line @ ~2.84? - The data is EOD and delayed so going by Google its currently at 2.89 which isn't far to go.

Anyway think there will be a bounce potentially Friday?
Also note that its high there is its all time high.

And do we have anyone *fundamentally* following ERM Power?


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## DrapSnagon (8 February 2014)

We do now.

I think it's worth a second look, especially for anyone with a position in AGK. 

*Firstly*, that chart is pretty uninspiring, with the share price now hovering only 20% above its $2 issue in 2010. That's not great, but not horrible either, and the timescale makes me comfortable that the company has become settled-in as a listed entity. Some new listings seem to take far too long to get used to the disclosure requirements, so we get clumsy announcements, ad hoc guidance and other niggling admin/compliance problems. EPW doesn't seem to suffer from that, even though it's 40%+ held by the MD/CEO.

The history of the company and its credentials are on their website, so I won't waste space regurgitating all that here. Suffice to say it's all pretty impressive both for consistency and strategic focus. I particularly like the fact that they publish the names and phone numbers of the broker analysts covering their stock:- how many companies do that?

*Now to the numbers*. The Accounts look a bit of a mess in some regards, especially if you try to apply conventional ratio analysis to some of them. In this case it doesn't bother me. As a small player, they are still in the development stage, even though the company has been around for 30 years. And "small" is relative:- being #4 isn't so bad in a specialised and guaranteed market. Just ask NAB.

That development imperative has seen them move into new businesses from scratch, as well as acquiring strategic stakes in others (like Oakey) for above market prices. So be it:- smaller companies usually have to pay over the odds to get "skin in the game". The question is not how much they spend at that level [within reason], but what they do with it. Anyone starting a new division from scratch obviously needs to invest in it.

And therein lies the reason why I'm prepared to forgive several anomalies in the numbers, including:-


A bizarre and non-recurring tax & franking situation due to the acquisition of Oakey,
Lack of headroom in the quick ratio
Declining ROA/ROE based on the adjusted statutory profit
Timing effects in accounting for their hedging

Use your choice of fundamental research providers for the numbers, but make sure you read the published accounts alongside them.

*Now, the prospects.* NSW are in the middle of divesting their power generation assets. ERM already have ACCC approval and AGK does not. 
_There is a Japanese suitor involved too, but I'll ignore him because I can't do anything about him. Origin and Energy Australia have already had their bite of the cherry. _​
Now, if AGK finds no regulatory hurdles, it ought to be in the box seat for MacGen. Even if ERM wins the bid, it will have no end of trouble financing it, which will mean a JV partner, diluting the long-term benefit to ERM. However, if ERM can finance the deal with itself as lead manager, it will be a game-changer for it, changing its business significantly.

Continuing with that thought, if ERM loses MacGen, that should put it top of the list for the final piece of the jigsaw:- Delta Coastal (again discounting foreign players). it's hard to believe the ACCC would let Delta go to either ORG or AGK if there's another viable local bidder, and this issue has just enough echoes of the Graincorp/ADM fiasco to stir up some political hurdles for the Japanese, imho.

To round out the ACCC's likely position, they must at some stage consider that both AGK (via their shenanigans in SA) and MacGen itself (via admissions from their ex-CEO) have blotted their copybooks on pricing creativity in the wholesale market. From memory, it had to do with peak supply too, which just magnifies the problem for AGK. Although none of it can be directly tied to consumer losses, I'm pretty sure some little old lady in the Adelaide hills paid a few dollars more on her 2010 power bill than she should have done. I'm just as sure that the ACCC will have drawn the same conclusion.
*
Finally, what's the business case?*

As I said up front, buying into ERM makes some sense to me as an AGK shareholder. It makes me indifferent as to which of the two end up with the NSW generation assets and reduces my risk of not owning them to the possibility that foreigners get one or both.

If this was priced into EPW now, I would forget the whole thing and move on, but I don't think it is. That makes EPW a buy for me, and the resolution of the NSW privatisation will mark the catalyst to either exit or hold long term.

Before closing, I know that buying state assets is not a guarantee of instant wealth in the same way as (for example) a Russian oil company was in the 1990s. Just ask any shareholder of Brisconnect or the Sydney Cross City Tunnel or Airport Link rail line. However, I see this as different because electricity is very different to a dedicated transport corridor in so many ways:- not least of which is that it can be sold anywhere in the country.

Markets are made of competing opinions, but that's mine 

Enjoy
Snap


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## hally93 (30 July 2015)

entered at 2.15 this week after recent correction.


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## WRiley (23 November 2016)

Frankly, I don't think a power generating and distributing company would do that badly. Its all-time low was 84cts hit on June 23rd. this year, when it fell off a cliff (June 16th., $1.45). The price has slowly recovered to $1 + after that.


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## Smurf1976 (24 November 2016)

ERM is primarily a retailer with their generation being limited to two power stations, only one of which is in the NEM (National Electricity Market - Qld, NSW, ACT, Vic, Tas, SA) and the other in WA.

Wholesale prices in the NEM are rising with the imminent closure of Hazelwood power station (Vic) and that's going to benefit generators but not in general retailers. Whilst ERM does generate, the vast majority of their operation is simply a case of retailing power generated by others with their own generation being relatively high cost to operate since it's all gas-fired and the gas price has roughly doubled in recent times.

What I don't know is the extent to which there's any mismatch between ERM's hedging of energy purchase costs versus their future retail commitments. If, hypothetically, they have retail obligations larger than their hedged position in the wholesale electricity market then they'll take a decent hit with rising prices. That's a hypothetical however since I haven't looked into them to that extent.

Those in the opposite position, low cost generation on a scale equal to or larger than their retail operations, are the obvious winners in the coming situation of rising prices.


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## WRiley (24 November 2016)

Smurf1976 said:


> ERM is primarily a retailer with their generation being limited to two power stations, only one of which is in the NEM (National Electricity Market - Qld, NSW, ACT, Vic, Tas, SA) and the other in WA.
> 
> Wholesale prices in the NEM are rising with the imminent closure of Hazelwood power station (Vic) and that's going to benefit generators but not in general retailers. Whilst ERM does generate, the vast majority of their operation is simply a case of retailing power generated by others with their own generation being relatively high cost to operate since it's all gas-fired and the gas price has roughly doubled in recent times.
> 
> ...




Tq Smurf for the invaluable insights. The reason why they are taking big steps to expand into the US mkt is because of the above events that you have mentioned hitting them in the local mkt. The latest reports and guidance a few weeks ago mentioned that their US operations would soon boost their earnings in the coming seasons.

I wonder if they are going to be right, this time,...


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## WRiley (24 November 2016)

Mr Trump's making America great again will, hopefully, bring in more good seasons ahead !


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## Boggo (15 December 2016)

Starting to show signs of life on both the weekly and the daily charts. Weekly chart below but not valid or complete unless it holds above about 1.21 on Friday.

(click to expand)


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## WRiley (15 December 2016)

WRiley said:


> Mr Trump's making America great again will, hopefully, bring in more good seasons ahead !






Boggo said:


> Starting to show signs of life on both the weekly and the daily charts. Weekly chart below but not valid or complete unless it holds above about 1.21 on Friday.
> 
> (click to expand)




Fundamentals pointing well, Technicals pointing well too if the Weekly holds above 1.21 tomorrow,... so, it should be well,....


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## Knobby22 (15 December 2016)

Boggo said:


> Starting to show signs of life on both the weekly and the daily charts. Weekly chart below but not valid or complete unless it holds above about 1.21 on Friday.
> 
> ()




Can you explain why $1.21 Boggo? I thought it would be $1.30.


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## Boggo (15 December 2016)

Knobby22 said:


> Can you explain why $1.21 Boggo? I thought it would be $1.30.




$1.21 is the Weekly breakout trigger, $1.30 would be the first line of resistance, imo of course.


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## roland (25 May 2018)

I must be the only one that has ERM.
Down 13% today


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## greggles (25 May 2018)

roland said:


> I must be the only one that has ERM.
> Down 13% today



Probably just some impatient holders taking profits because the Trading Update released today wasn't as positive as they'd hoped. Also, it looks like it was having trouble getting through $1.85.

Don't know how long you've been holding but ERM Power has been having a pretty good run since July 2016. This is probably just a temporary downturn.


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## kid hustlr (25 May 2018)

Don't worry I have it - been whacked by the market several times in the last week or so!

[x] good looking set up
[x] on market buy back occurring to naturally support the stock
[x] big seller at 1.80 gone

I loved this trade and it's going to hurt my P & L 

Funny how it works some times.


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## roland (25 May 2018)

greggles said:


> Probably just some impatient holders taking profits because the Trading Update released today wasn't as positive as they'd hoped. Also, it looks like it was having trouble getting through $1.85.
> 
> Don't know how long you've been holding but ERM Power has been having a pretty good run since July 2016. This is probably just a temporary downturn.
> 
> View attachment 87513



Been holding for 1 year and 339 days 

Average is $1.19 so I am OK - holding for dividend return really - SP doesn't bother me much!


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## leyy (28 May 2018)

Australian business is performing strongly. However, their US volumes have decreased and margins have eroded significantly from indicated $4.50 mW/h to $3.70 mW/h in FY 18 and to $3.30 mW/h in FY19 (down weighted average of circa 21%).

The US business is circa 25% of the total electricity retail sales volume for the company 25 TW/h.

Their operating expenditure for the US business is circa $3.50 mw/h so their US business is will not be NPAT breakeven to after 2020.

The announcement was very ambiguous and didn't actually announce an earnings downgrade, which in fact it really is.

TRADING UPDATE: ERM POWER AFFIRMS AUSTRALIAN BUSINESS  OUTLOOK & UPDATES US OUTLOOK 

It doesn't mention what impact the US business has on its earnings, but Mr market and the analysts do not need to read between the lines.


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## SuperGlue (8 March 2019)

Up 4% (0.07) today.

Weekly & Daily chart looks good.
Breakout?


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## Ann (9 March 2019)

SuperGlue said:


> Up 4% (0.07) today.
> 
> Weekly & Daily chart looks good.
> Breakout?
> ...



Let's see if that overhead resistance at $1.85 we have on both our charts causes a retrace...


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## Cam019 (24 March 2019)




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## rnr (30 April 2019)

ERM's price has consolidated over the last 5 bars, TMF has moved higher and there is some bullish divergence to add to the mix!


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## peter2 (4 July 2019)

EPW is looking more bullish as price is coiling under the 2.00 level. I've posted a monthly chart that shows price is struggling to go higher after the corrective abc pattern. The initial target is 2.50 if price gets moving, then 3.00.


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## Porper (4 July 2019)

A loose Cup & Handle pattern on the daily as well. Target $2.20

I hold.


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## greggles (22 August 2019)

Shell Energy Australia proposes to acquire 100% of the share capital of ERM Power for a cash price of $2.4654 per share, valuing the company at approximately $617million. The directors of ERM have unanimously recommended that ERM Power shareholders vote in favour of the scheme in the absence of a superior proposal.

ERM also released its FY2019 financial results today and they were pretty respectable:






Shell is obviously looking to diversify into power generation and ERM is a nice pick up for them. I think they got it at a good price at 5 x NPAT but a 38% premium isn't a bad result for shareholders either.


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## Smurf1976 (30 August 2019)

greggles said:


> Shell is obviously looking to diversify into power generation and ERM is a nice pick up for them.



It also amounts to vertical integration on Shell's part given ERM's involvement with gas-fired power generation and electricity retail whilst Shell itself is involved in the gas industry. 

Owning more parts of the chain from resources in the ground to customer accounts provides a natural hedge to market fluctuations so there's an attraction in that.


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## System (5 December 2019)

On December 2nd, 2019, ERM Power Limited (EPW) was removed from the ASX's Official List in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between EPW and its shareholders in connection with the acquisition of all the issued capital in EPW by Shell Energy Australia Pty Ltd.


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