ERM Power

AU: EPWX

AU$450.5m market cap

AU$1.8 last close

ERM Power is an Australian commercial and industrial energy retailer and trader. It operates an electricity supply business and two gas-fired generation plants. A key area of growth is energy solutions.

Investment summary

The recent investor day confirmed that the evolving energy market will create medium-term growth opportunities, especially for the Energy Solutions business and Power generation. In the meantime, investors will benefit from strong forecast cash flow generation, with total free cash flow over the period FY19–21 equivalent to c 40% of the current market cap, to be allocated in a balanced way between shareholders’ remuneration and growth capex. At the H1 results ERM announced a c 30% dividend hike, an additional special dividend, higher medium-term outlook for Electricity Retail margins and higher growth capex. The next catalyst is the full year results at the end of August.

Y/E Jun
Revenue (A$m)
EBITDA (A$m)
PBT (A$m)
EPS (fd) (c)
P/E (x)
P/CF (x)
2017A 3127.0 78.4 14.7 (10.5) N/A 2.9
2018A 2047.0 97.5 43.1 12.0 15.0 N/A
2019E 1966.0 90.6 35.4 10.1 17.8 4.0
2020E 2047.0 105.6 50.3 14.5 12.4 4.5
Last updated on 25/07/2019
Industry outlook

While electricity supply activities in Australia remain very competitive with limited growth opportunities, ERM Power has experienced significant positive momentum leading to several upgrades to Australian medium-term profit guidance over the last two years. 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 growing Energy Solutions business to take advantage of these changes.

Last updated on 25/07/2019
Sector
Industrials
Share price graph
Balance sheet
Forecast net debt (A$m) 54
Forecast gearing ratio (%) 23
Price performance
%
1m
3m
12m
Actual (1.9) 4.0 26.3
Relative* (4.3) (2.5) 16.1
52-week high/low A$2.0/A$1.4
*% relative to local index
Key management
Jon Stretch CEO
James Spence FD
Olga Alexandratos Investor Relations