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.
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