EOL - Energy One

[springhill]

MC - $2m
SP - 10c
Shares - Approx 20m
Options - ?
Cash - $1.95m

Energy One is Australia’s leading provider of ETRM solutions, with software product and service solutions for wholesale and retail energy businesses, including carbon and environmental certificate trading and management needs.

Energy One Limited acquires the Web Offer System (WOS) business, Australia’s leading energy market bidding software.

Energy One is pleased to announce that it has acquired the assets, business and existing customers of the company HARD Software Pty Ltd, including the Web Offer System (WOS) software and intellectual property.

The WOS system is Australia’s leading energy bidding software platform, enabling the bidding of multi-billion dollar electricity transactions into the National Electricity Market (NEM) on a daily basis. This is a mission-critical activity for generators in the NEM and WOS is the trusted and proven platform used by many of Australia’s largest energy companies.

The acquisition is mutually beneficial for both Energy One and for HARD Software. Energy One has a strategy of growth through targeted acquisition and HARD Software was keen to form a strategic alliance to further develop the platform and to enhance services to its major clients.

Managing Director of Energy One, Shaun Ankers commented: “We are very excited to welcome the WOS software to our product suite. Energy One prides itself on being the premier supplier of integrated, enterprise-level energy software solutions to Australian energy customers and this acquisition enhances our position as a key supplier to the major energy businesses, many of whom are ASX200 companies”.

Dr Harley Mackenzie, Managing Director of HARD Software, said: “We have developed WOS over a number of years to become the market’s leading electricity bidding solution. We were keen to find a purchaser who would take the software solution to its next logical step, whilst maintaining the high levels of support with which our customers are familiar. Energy One’s suite of energy related software products and services, plus their commitment to the Australian market, made them an ideal choice for the future growth and development of the software”.

Dr Mackenzie will remain closely connected with the newly acquired business on an ongoing basis. “We are pleased that Harley will help to provide unbroken support for existing WOS customers and will help us to develop and innovate new products to meet the needs of our customers in a carbon-constrained economy”, said Mr Ankers.

The acquisition is earnings accretive and is funded via cash and future earnings.

 

[Dona Ferentes]

Not a lot of comment on EOL. Up 20% today, on news the company has just "signed a share purchase agreement to acquire 100% of eZ-nergy, a French company selling Software as a Service to utility customers across Europe.

eZ-nergy is a well-established profitable company and on completion of the transaction will be earnings accretive. The total purchase price of €4million will be funded using bank debt and equity. Equity (equal to €500k) will be issued to the vendors and consideration is being given to a small capital raise depending on debt sizing."

This will probably make it easier to move into Europe, seeing the UK acquisition may not achieve that (Brexit??). As outlined in Oct 2019, ...looking forward, the domestic energy market will be undergoing significant change in the next 2-3 years, as regulatory adjustments to market structure (such as Australia’s cutting edge adoption of the 5-minute market) become reality. This requires front ended investment (which has already commenced) to allow customers to meet these but will create future opportunities as customers with legacy or less flexible product suites struggle to comply.

The opportunities in Europe will expand as our sales focus in the UK and exploration of European niches flow through to revenues, and existing UK customers are exposed to the capability of products like Energy Flow..

 

[Dona Ferentes]

I wanted to put this in the FY 2020 comp, but it didn't qualify as turnover is too low. I hold some EOL but couldn't capitalise on the recent drop (high to low 2's) and pick up some more, because of limited stock availability and an annoying bot.

Market cap is still only $35million. EOL has been around for a decade but only really hitting its straps in the last few years. The Company offers SaaS and automation solutions for the trading and scheduling of physical and contract bulk energy and derivatives (including electricity, gas, liquid commodities and environmental and carbon trading).

With some 50% of Australia’s bulk energy traded using its systems, it might be thought that it is a niche player in a small sector, a ticket clipper but regulated, and without too much growth. This is reflecting in having a low PE (around 15), paying out unfranked dividends in last 4 years (1c, 1c, 2c, 3c). However, a few things are in play.

1. Five Minute Settlement?
In November 2017, the Australian Energy Market Commission (AEMC), the rule-maker for the National Electricity Market, decided 5 Minute Settlement should be implemented in the NEM and come into effect on 1 July 2021. They tasked AEMO with the role of implementing changes to market procedures and systems necessary to perform 5 Minute settlement, as well as obligations on participants to adopt the changes.
https://www.aemc.gov.au/news-centre/media-releases/delivering-grid-future
This requires front ended investment (which EOL has already commenced) to allow customers to meet these changes but will create future opportunities as customers with legacy or less flexible product suites struggle to comply.

2. Changing nature of the grid, suppliers and consumers
Baseload is no longer the only (and cumbersome) option. Utilising gas fired stations, hydro, plus ever-increasing solar and wind, both large scale and domestic, demand can be managed from many sources. Batteries will probably play an increasing role in this management; the push to renewables and phasing out coal, and eventually gas, will mean a continual juggle of supply and demand.
https://www.aemc.gov.au/news-centre/media-releases/ebay-ing-australias-energy-market

3. Growth through both organic expansion and targeted acquisitions.
Contigo is a vendor of energy trading systems in the UK and Europe. Based in the UK, it is a similar size to EOL, & was acquired in late 2018. Then in Dec 2019, the acquisition of Paris-based eZ-nergy was announced. The software developed by eZ-nergy is written in the same language as Contigo’s software and the two product-sets are highly complementary. Energy One is now looking to immediately extend its geographic presence in Europe, already having 250 customers in 18 countries. Apart from combining back office, sales and marketing resources but also technical resources, the company has the ability to provide 24 hour global support.

The timing of these transactions means costs will be booked this FY but the benefits not show up till next year. The UK is a market 3x the Australian one, and continental Europe some 10-12 times. Meantime, directors are buying.

 

[galumay]

I had quite a close look at this one when it came across my bow recently. In the end the debt ratio was the thing that stopped me looking any deeper as I have a hard rule on debt to equity ratios. My other concern that made it a bit problematic was the lack of free cash flow at this stage.

 

[sptrawler]

I wanted to put this in the FY 2020 comp, but it didn't qualify as turnover is too low. I hold some EOL but couldn't capitalise on the recent drop (high to low 2's) and pick up some more, because of limited stock availability and an annoying bot.

Market cap is still only $35million. EOL has been around for a decade but only really hitting its straps in the last few years. The Company offers SaaS and automation solutions for the trading and scheduling of physical and contract bulk energy and derivatives (including electricity, gas, liquid commodities and environmental and carbon trading).

With some 50% of Australia’s bulk energy traded using its systems, it might be thought that it is a niche player in a small sector, a ticket clipper but regulated, and without too much growth. This is reflecting in having a low PE (around 15), paying out unfranked dividends in last 4 years (1c, 1c, 2c, 3c). However, a few things are in play.

1. Five Minute Settlement?
In November 2017, the Australian Energy Market Commission (AEMC), the rule-maker for the National Electricity Market, decided 5 Minute Settlement should be implemented in the NEM and come into effect on 1 July 2021. They tasked AEMO with the role of implementing changes to market procedures and systems necessary to perform 5 Minute settlement, as well as obligations on participants to adopt the changes.
https://www.aemc.gov.au/news-centre/media-releases/delivering-grid-future
This requires front ended investment (which EOL has already commenced) to allow customers to meet these changes but will create future opportunities as customers with legacy or less flexible product suites struggle to comply.

2. Changing nature of the grid, suppliers and consumers
Baseload is no longer the only (and cumbersome) option. Utilising gas fired stations, hydro, plus ever-increasing solar and wind, both large scale and domestic, demand can be managed from many sources. Batteries will probably play an increasing role in this management; the push to renewables and phasing out coal, and eventually gas, will mean a continual juggle of supply and demand.
https://www.aemc.gov.au/news-centre/media-releases/ebay-ing-australias-energy-market

3. Growth through both organic expansion and targeted acquisitions.
Contigo is a vendor of energy trading systems in the UK and Europe. Based in the UK, it is a similar size to EOL, & was acquired in late 2018. Then in Dec 2019, the acquisition of Paris-based eZ-nergy was announced. The software developed by eZ-nergy is written in the same language as Contigo’s software and the two product-sets are highly complementary. Energy One is now looking to immediately extend its geographic presence in Europe, already having 250 customers in 18 countries. Apart from combining back office, sales and marketing resources but also technical resources, the company has the ability to provide 24 hour global support.

The timing of these transactions means costs will be booked this FY but the benefits not show up till next year. The UK is a market 3x the Australian one, and continental Europe some 10-12 times. Meantime, directors are buying.

Great write up Dona, I will have a look tomorrow.

 

[Dona Ferentes]

..the debt ratio was the thing that stopped me looking any deeper as I have a hard rule on debt to equity ratios. My other concern ... was the lack of free cash flow at this stage.

noted about the debt. The attraction, if they can incorporate the new acquisitions (and we're only talking small numbers of employees, offices), is maintaining margins and integrating operations, stripping out costs. It's a punt, but in a time of transformation and growth opportunity.

 

[galumay]

Agree, there is a potential catalyst with the acquisitions and growth tipping it into a FCF +ve position.

The debt thing is just one of my defensive rules in times where the market is frothy & strongly overvalued - in the paraphrased words of Howard Marks, in times like these its prudent to proceed with caution!

 

[Dona Ferentes]

...I will have a look tomorrow.

tomorrow now three weeks ago. SP then was $2.80 and it had run hard to that point, mainly on the eZnergy news. Since then, and unlike previous times when there may not have been any trades for days, it would be the case that volume has lifted, buyers have outnumbered sellers (as disclosed on the boards), bots have had a hard time of it, and most sell offers have been snapped up, with a daily dribble seeing higher prices by most days' ends. Now $3.59.

 

[sptrawler]

tomorrow now three weeks ago. SP then was $2.80 and it had run hard to that point, mainly on the eZnergy news. Since then, and unlike previous times when there may not have been any trades for days, it would be the case that volume has lifted, buyers have outnumbered sellers (as disclosed on the boards), bots have had a hard time of it, and most sell offers have been snapped up, with a daily dribble seeing higher prices by most days' ends. Now $3.59.

Jeez I forgot, grandkids just gone back to school monday, story of my life.
Still I'm a bit of a Jonah, so you are probably lucky I didn't buy in.
The EZ-Nergy acquisition looks promising, I will see if there is an opportunity, but if it turns pear shaped don't blame me.
I bought PPS on a recommendation here and it has done nothing since.

 

[Dona Ferentes]

financial performance of the Group, for the half, was as follows:
· Group operating revenue was $9.4M (total revenue and other income: $9.7M)
· EBITDA of $2.3M, which is 24% of total revenue.
· NPBT was $0.767M.
· NPAT of $0.41M

The immediate observation is that while both revenue and EBITDA are up on the prior corresponding period, the Net Profit Before Tax is flat. As previously foreshadowed, this is a direct result of the considerable investment being made in our products to prepare for the new 5-minute settlement market, and other key initiatives (such as platform integration), in Australia.

It is worth noting that the business is neither seasonal nor symmetrical (from one half to the next) with performance in each half being reflective of the ebb-and-flow of project work during any given 12-month period.

We are pleased with the continual improvement in financial performance and steady, synergistic growth in customer numbers and revenues without loosing focus on continued, reliable profitability, and ongoing investment in the development and enhancement of products.

We now hold strong positions in the physical and contract trading software for electricity and gas and have an increasing presence in Europe (shortly to become stronger via eZ-nergy). We also remain committed to building on our existing product range, reputation and customer base to make EOL a one-stop shop for energy trading software and services in our target markets here and abroad.

With this in mind, the Board remains confident in it’s existing guidance of a full-year FY20 operating EBITDA result (excluding one-acquisition costs and lease accounting changes) of $4.5M.

- market liked it. Buying up to $3.60

 

[Dona Ferentes]

here I go again (here it goes again)!

with recent volatility, a stock like EOL that has wide Buy/ Sell spreads, low turnover (some days without any matching) can bounce around dramatically. And it did, with the recent COVID-19 conniptions.

With 21.3 million shares on issue and a M/Cap above $60mill, there is even a likelihood of inclusion the All Ords (an index based entirely on market capitalisation and with no filter for liquidity, & rebalanced once a year, on the third Friday of March). Coming soon??
https://www.marketindex.com.au/all-ordinaries

 

[Dona Ferentes]

Raise $4.4mill from sophisticated investor (Topline Capital Partners) and Directors @ $2.20 a share to finalise the eZnrgy acquisition.

No scraps off the table for retail, though

 

[Dona Ferentes]

Raise $4.4mill from sophisticated investor (Topline Capital Partners) and Directors @ $2.20 a share to finalise the eZnrgy acquisition.

No scraps off the table for retail, though

but, oh yes, some available through a SPP. Formula looks vague, though

opportunity to apply for up to A$11,000 of new Shares without incurring brokerage or transaction costs. Participation in the SPP is optional. The issue price of the new Shares under the SPP is fixed at $2.20 per share.

The Company reserves the right (in its absolute discretion) to scale-back applications if demand exceeds A$750,000. If the Company chooses to scale back applications it will do so on a pro-rata basis (determined either by the number of shareholders participating, and/or the size of the Eligible Shareholder’s shareholding at the Record Date, and/or the number of shares an Eligible Shareholder has applied for under the SPP).

 

[Dona Ferentes]

EOL originally announced a targeted cap of $750,000 for the SPP, but has increased that target to $1,815,000, to acknowledge the oversubscription for the SPP. As such SPP applications will not be scaled back.

The SPP complements the Company’s recently announced private placement to Topline Capital Partners LP, two directors and an officer of the company raising $4.4 million.
.
At $2.20 a share, there's a nice upkick here for participants. Currently Buy $3.20 ~ Sell $3.70. I suppose that will drift down a bit with profit taking

(HOLD, took part)

 

[Dona Ferentes]

hitting new highs. Buyer(s) nibbling away, selling is a reluctant drip feed. Small volumes.

(hold, added at SPP)

 

[Dona Ferentes]

hitting new highs. Buyer(s) nibbling away, selling is a reluctant drip feed. Small volumes.

new, new high. plus everything as per above. Reporting next week?

(hold; added at SPP, which now doubled from $2.20.)

 

[Dona Ferentes]

EOL announcing another year of profitable growth for the Group, with revenues up 28% and net profit after tax up 26% on the prior year.

To date, the business has not been materially affected by COVID-19. Our customers (for the most part) are large utility companies and infrastructure providers operating in the gas and electricity markets. The Group provides its Software-as-a-Service to these entities, where it is generally considered mission-critical in order to ensure daily operations are maintained. In addition, our staff are highly skilled IT professionals who routinely install software remotely from customers premises. To this end all our employees can also work remotely from home. The robustness of selling SaaS to blue-chip customers has certainly been borne out during the recent uncertain environment.

Comparative EBITDA, net of adjustments such as one-off acquisition costs and lease accounting changes, was $4.7M, up 23% on FY19 while EBITDA was $5.3M, up 38% on the prior year. These results include contributions from U.K-based Contigo Software (Contigo) for a full 12 months and French based eZ-nergy (eZ), contributing 1 month. Group EBITDA margin for FY20 was 26% (FY 19: 24%).

Group recurring revenues were 77% of operating revenue. These recurring revenues arise from SaaS fees, which are generally renewed automatically on an annual basis. The balance of operating revenue arises from one-off project work such as ‘time and materials’ fees for installation, bespoke enhancements or consulting.

In FY20, 44% of our revenue is now being generated in UK/Europe. The Group now has customers in 17 countries and is well positioned as a global-reach, independent player in the energy trading software market. The UK business has grown beyond our original expectations, producing revenue of $8.7M and EBITDA of $1.6M (upon acquisition, we noted ‘first full year’ forecasts of $8.5M and $1.25M respectively). This result indicates not only the quality of the business but also the benefits gained from integration.

Net assets increased by $9.7M during the year with closing cash of $3.53M. Notably, cash is up from $2.2M at June 19. During the year, we successfully raised equity capital via two raisings (a placement for $4.4M and an oversubscribed SPP for $1.815M). The funds being used to partially fund the eZ acquisition and for working capital. Total debt was reduced from $6.5M to $0.6M with $4.45M available for redraw.

Dividend of 3.5c unfranked.

OUTLOOK : We expect that our business will remain materially unaffected by COVID-19 in the coming year, but we are aware that we may see some smaller customers exit the market and/or mergers between larger players. For this reason, we are expecting a steady year ahead in terms of organic growth in customer numbers. In addition to seeking this organic growth, the Group continues to actively seek strategic growth through prudent acquisitions and other strategic relationships related to highly complementary businesses.

In keeping with past practice, the Group wishes to provide shareholders with an indication of the shape of the business going forward, now that Contigo has been successfully integrated. As such, our expectations are that for FY21, the Group is likely to achieve revenues in the order of $25M and EBITDA of approximately $6.5M.

 

[ben267]

Thanks for all the udpates. All-in-all it looks like a great company, guidance for FY 21 looks great too, but one thing I couldn't completely get behind. They have an employee benefits expense that is almost 50% of the revenues. When going into the footnotes, most of it goes into other employee benefits. Anyone knows what that is? Is this shares issued to management or something else?

Thanks!

 

[Dona Ferentes]

Thanks for all the udpates. All-in-all it looks like a great company, guidance for FY 21 looks great too, but one thing I couldn't completely get behind. They have an employee benefits expense that is almost 50% of the revenues. When going into the footnotes, most of it goes into other employee benefits. Anyone knows what that is? Is this shares issued to management or something else?

the $10mill is $8mill salaries (incl $441K R&D), then a mill each on Super + Employee Share Plan (*includes a share option arrangement and an employee share scheme. The bonus element over the exercise price of the employee services rendered in exchange for the grant of shares and options is recognised as an expense in the income statement. Fair value of the options at the grant date is expensed over the vesting period...) ..
- generous, but a small company needing to attract talent?

Very thinly traded, a Director got a few away the other day. Downside could be more selling, and/ or the double top? and
/or the gap needing to be filled?
Six month/ daily basis:

 

[Dona Ferentes]

Updated for 6 months to end-Dec 2020:

Previous guidance for full FY21 was Revenue of $25M and EBITDA of $6.5M. The Company now expects revenues for H1 FY21 to be in the order of $13.7M and EBITDA of around $4.1M.

The improved result stems from strong (previously announced) project implementations during the half. Customer accounts also continue to grow, with eZ-nergy winning four new accounts in November alone, amounting to 12 new accounts for 2020 thus far. Contigo has also won new accounts and sold additional enhancements to existing customers and successfully completed milestones on major customer projects, providing us with further evidence for our European growth strategy. Australia continues to make progress rolling out the 5MS solutions for the upcoming market change.

While not providing guidance for Net Profit After Tax (NPAT) for the half, the Company expects there to be a pronounced improvement in NPAT (compared to the prior corresponding period) given the beneficial effects of the increased profits and the Company’s Australian and overseas tax treatments (see note 4 of FY20 Annual report).

We have previously noted that the business is neither seasonal, nor symmetrical (from half-to-half) and therefore it is not appropriate to assume that the H1 FY21 result will be replicated in the second half of the FY21 year. Nonetheless, it is expected that the full year result will exceed the prior guidance.

(Happy to Hold)