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ERM Power (EPWX)

Business description

ERM Power is an energy retailer and trader founded in 1980 and listed in 2010. In Australia it operates an electricity supply business (second largest retailer to C&I customers) and two gas-fired generation plants. Key areas of growth are the US electricity retail market (entered in 2015) and energy solutions.

Y/E Jun Revenue (A$m) EBITDA (A$m) PBT (A$m) EPS (fd) (c) P/E (x) P/CF (x)
2016A 2691.0 71.0 23.0 7.62 18.5 N/A
2017A 3127.0 78.0 15.0 (10.77) N/A N/A
2018E 3391.0 84.0 11.0 3.24 43.5 2.8
2019E 3524.0 93.0 16.0 4.89 28.8 2.1

Last updated on 24/07/2018

Investment summary

ERM Power’s strategy is focused on sustaining growth in its cash-generative core Australian activities while developing two new growth areas: energy solutions and US supply. While we recently reduced our short-term forecasts for the US activities to reflect lower margins and volumes, as guided by the company, we have increased our forecasts for energy solutions on the back of our new assessment following a recent investor briefing. Our analysis suggests this business could drive up to 40% growth in group EBITDA in the medium term (16% mid-case). Our base case valuation, which includes core Australian business only, is unchanged at A$2.6/share.

Last updated on 27/07/2018

Industry outlook

While electricity supply activities in Australia remain very competitive with limited growth opportunities, ERM Power has experienced significant positive momentum which led to a double upgrade to Australian medium-term profit guidance over the last 12 months. The energy market in Australia (and globally) is undergoing significant transformation as a result of the energy transition, the emergence of new technology and customer demand for higher energy efficiency and sustainable solutions. We expect the recently launched Energy Solutions business to take advantage of these changes.

Last updated on 27/07/2018

Key management

Jon Stretch, CEO
James Spence, FD

Company address

Level 52, 111 Eagle St,
QLD 4000
+61 7 3020 5100
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