EAX - Energy Action

[System]

Energy Action Limited (EAX) is Australia's leading energy auction procurement business and a major player in the broader energy management services market.

http://www.energyaction.com.au

 

[seareb]

Energy Action Limited (EAX) is Australia's leading energy auction procurement business and a major player in the broader energy management services market.

http://www.energyaction.com.au

Company listed yesterday (13/10). Closed at $1.30.

 

[VSntchr]

After reviewing dozens of annual reports over the last month or so...EAX is one that has taken my attention.

They state that there is a growing trend for companies to outsource energy costs. This combined with increasing energy costs and the upcoming carbon tax...leads me to think that EAX will be building their clientele.

Management reported a 15% increase in profit..but they decided not to add back a $0.5m ASX listing fee. This gives me an insight into the intentions of management and would lead one to believe they are not big on deception.
As the cost is a one-off..adding it back takes the HY profit to ~$2.2m.

Full year results could be somewhere around the 16-18c EPS region with a dividend payout around 50% of earnings.

 

[Ves]

Wow... almost doubled in price since I bought it. Only one post so far!

One of the best small caps on the market, in my opinion. Predicting EPS for 2013 to be about 20-21c. Plenty of recurring revenue (in fact it's an absolute beast in this respect). Very high ROC at the moment as you would expect from a growing small cap.

Solid player in a niche area with favourable tailwinds and potential long-term competitive advantages. Expect them to keep consolidating and buying out the smaller players.

 

[catfish]

Wow... almost doubled in price since I bought it. Only one post so far!

One of the best small caps on the market, in my opinion. Predicting EPS for 2013 to be about 20-21c. Plenty of recurring revenue (in fact it's an absolute beast in this respect). Very high ROC at the moment as you would expect from a growing small cap.

Solid player in a niche area with favourable tailwinds and potential long-term competitive advantages. Expect them to keep consolidating and buying out the smaller players.

You obviously following the boat fund vesupria. I also bought eax around those levels. I bought 1500 and wish I bought more, I'm just a kid. One of those wish I'd bought more situations. I have considered adding to my position, although it is always hard to add at higher levels(human nature).

What do you think it's worth then. The market loves them and correctly so.

 

[systematic]

Different perspecives are always interesting:

I've got it (unsurprisingly) scoring as a trend/momentum play.

However, on a value basis, I have it on the worst score possible (i.e. expensive).
That doesn't necessarily make it a bad trade. On a combined basis, it's still up there simply because it's been such a strong riseer.

But from a value (only) point of view, I have it as one of the worst companies I follow.

 

[McLovin]

I started buying this back in April and just under $2. Been a real pain trying to get my fill on such a small volume stock!

I think it's still cheap. No debt, growing cashflow, relatively fixed capex (software). Customer retention is 95%, and consists of many large corporates.

Great FCF.

 

[Ves]

What do you think it's worth then. The market loves them and correctly so.

I think it is worth less than the current market price, but it is not crazily over-valued (yet). Intrinsic value should increase at a pretty good clip. As McLovin said they have lots of FCF that they can definitely re-invest at high rates of return.

McLovin - there is another similar company floating in the energy efficiency space. The code is ECV. The earnings look at lot more lumpy though. But looks interesting.

 

[craft]

I started buying this back in April and just under $2. Been a real pain trying to get my fill on such a small volume stock!

I think it's still cheap. No debt, growing cashflow, relatively fixed capex (software). Customer retention is 95%, and consists of many large corporates.

Great FCF.

I couldn't get fully set at my required price, so I'm now out - I have a hard rule on max number of positions in portfolio and couldn't justify using a position for a part holding with little likely hood of adding in the near future.

Some of these small liquidity stocks seem to be gathering large followings quickly - makes life tricky sometimes.

So I’ve sold to slum around in the unloved - crazy - probably!

 

[McLovin]

Some of these small liquidity stocks seem to be gathering large followings quickly - makes life tricky sometimes.

I noticed that too. There also seems to be a new micro-cap fund launching every week!

 

[skc]

I noticed that too. There also seems to be a new micro-cap fund launching every week!

Can you point me to some of these? I am looking for a lazy micro exposure.

The only one I know of is from http://microequities.com.au/

 

[catfish]

I noticed that too. There also seems to be a new micro-cap fund launching every week!

Next stop market efficiency

 

[McLovin]

Can you point me to some of these? I am looking for a lazy micro exposure.

The only one I know of is from http://microequities.com.au/

Sent you a PM

And also

We may as well start our own microcap fund, we seem to spend enough time discussing them!

Vespa, I had a look at ECV, but I think it's just too small, at least before the shares are out of escrow. The CEO rents a house owned by the company for $2500/month. The company will sell the house next year. It's on the books at $650k, I wonder how much they'll sell it for and to whom.

 

[Ves]

Results OK - but not mindblowing by any means.

Cashflow still looks pretty good and resonable top-line growth. Cost control could be a lot better. Have a look at salaries & admin expenses for instance.

Acquisition definitely looks like it has added some dilution to the EPS. Hard to judge when until it has been there for a full year.

I'm glad I got in under $2.00. Not really paying for growth at that price - so still happy holding.

 

[McLovin]

I was little disappointed that they didn't even mention the rising staffing costs. They're still aiming for double digit growth, still looks good but I'll be watching the cost control very closely. Wouldn't buy at these levels but happy to hold.

 

[Ves]

I was little disappointed that they didn't even mention the rising staffing costs. They're still aiming for double digit growth, still looks good but I'll be watching the cost control very closely. Wouldn't buy at these levels but happy to hold.

Cost control looked heaps better to me in this half. Still looks like a money spinner to me - amazing ROIC. If they can keep re-investing half of the free cash flow generated by the core business for any length of time at even half of the current rate then this isn't as over-valued as it looks (I would probably argue it's close to fair value though).

Interesting to see how hard the competition starts pursuing their excess profitability.

I still can't believe they floated this business at less than a third of the current price. It's not as if it was a start-up or highly cyclical business.

 

[McLovin]

Cost control looked heaps better to me in this half. Still looks like a money spinner to me - amazing ROIC. If they can keep re-investing half of the free cash flow generated by the core business for any length of time at even half of the current rate then this isn't as over-valued as it looks (I would probably argue it's close to fair value though).

Interesting to see how hard the competition starts pursuing their excess profitability.

I still can't believe they floated this business at less than a third of the current price. It's not as if it was a start-up or highly cyclical business.

A much better result this time around. I do wonder how much cash they can keep ploughing back into such a low capex type business at these sort of returns, especially if competition starts pecking at their feet. Right now, they can pretty much get 90% of their revenue without lifting a finger, an enviable position and one no doubt being eyed. I like these little money spinners. Easy for my brain to understand.

 

[craft]

What do you guys think of some contract acquisition costs being capitalised?

If they paid a straight salary instead of base + commission I doubt they could capitalise the employment costs.

Just an expense recognition timing issue and probably no big deal – but any unnecessary accounting complexity tends to make me go hmmm.

The forward revenue looks good, but an unknown question to me that is also relevant to the capitalisation question is how tight is the future contracted revenue especially if stress tested by an eager competitor. current returns are going to need pretty good protection I would think.

From note 14

Discounting is applied as no claw back provisions are in place to recover commission paid should the
employee leave or the energy supply/monitoring contract terminate before the end of the original energy
supply/monitoring contract term.

 

[Ves]

What do you guys think of some contract acquisition costs being capitalised?

If they paid a straight salary instead of base + commission I doubt they could capitalise the employment costs.

Just an expense recognition timing issue and probably no big deal – but any unnecessary accounting complexity tends to make me go hmmm.

I think it is OK - as long as they match income and expenses closely going forward. I try to make monitoring cash flow a priority and operating cashflow conversion to EBITDA - so would like to think it would become obvious if they were manipulating it.

The forward revenue looks good, but an unknown question to me that is also relevant to the capitalisation question is how tight is the future contracted revenue especially if stress tested by an eager competitor. current returns are going to need pretty good protection I would think.

I think you make a good point and my biggest problem, and why I haven't looked at buying any more since $2 is that futures returns and ability to protect the franchise are still fairly unpredictable at this stage.

 

[McLovin]

What do you guys think of some contract acquisition costs being capitalised?

If they paid a straight salary instead of base + commission I doubt they could capitalise the employment costs.

Just an expense recognition timing issue and probably no big deal – but any unnecessary accounting complexity tends to make me go hmmm.

Hey craft

I'm willing to give these guys a pass. IMO, they are capitalising an expenditure that can be traced directly to a discrete revenue stream, instead of just apportioning some marketing spend or sales team expense to "customer acquisition" ala JIN. Like V, I like the cashflow statement more than the P&L.

The forward revenue looks good, but an unknown question to me that is also relevant to the capitalisation question is how tight is the future contracted revenue especially if stress tested by an eager competitor. current returns are going to need pretty good protection I would think.

From note 14

This is a fair point. I think the current contract revenue is fairly safe given the size of both contracting parties (energy suppliers and mid/large size energy users) but after that who knows. FWIW, I don't think these guys have the type of network effect that genuine "online markets" do like REA, CRZ etc this is much more of a niche business but so far they have managed to carve out a nice little earner. This isn't one I'd toss in the bottom draw for 10 years, I'll be watching it.