eEnergy (EAAS) is a company that very recently cropped up on my radar as a potential growth play, which resulted in a catch up call with the CEO last week. My timing on this one I confess hasn’t been too good however, as the shares have enjoyed a really strong run recently with momentum building and which last Friday saw the stock close at 26.5p. That said, there could be plenty of further upside yet to come and it perhaps isn’t surprising to see the company attracting investor attention, where it operates in an interesting growth spot. This sees the company in part, offering and providing efficient LED lighting to the likes of schools which enhance performance along with importantly saving the school money on efficiency. Existing and inefficient lighting is removed as part of the offering with new products installed which aside the cost and benefits can also provide for a better lighting experience. CEO and co-founder Harvey Sinclair told me that the business was set up some seven years back as a core energy-as-a service operation that was concentrated on helping customers reduce their costs and their carbon footprint. Since then, the business has grown both organically and through targeted strategic acquisitions driven by a buy-build model that is now seeing the company extending its reach and scaling up across the wider energy space. Sinclair says that there are now two parts to the business and within its buy-build strategy the company is growing with avengeance. A key part of its business model the CEO tells me, is that EAAS offers a subscription service which kicks in after an initial assessment of a client’s carbon footprint and the clear identification of energy savings. The company then ensures that energy efficient products such as suitable LED lighting are fitted and subsequently maintained, which results in ongoing monthly fees, which are effectively paid for out of the clients savings. Sinclair says it’s a win-win situation for both parties and judging by the level of take up and growth being achieved it looks like EAAS is well positioned for further adoption and ongoing growth and expansion. “We are the market leader in this space and we are setting a strong pace with over a thousand projects which sees us operating across the education and public sectors along with commercial and industrial”. The proposition certainly looks an attractive one and in cash constrained times for the likes of schools it would appear to be an obvious choice. Additionally, in turn, it presents extensive opportunities for EAAS to further build scale. Sinclair is no stranger to the buy-build strategy or for that matter growing a public quoted company, as he formerly founded an AIM business operating in the on-line recruitment space. This was subsequently sold to a large Newspaper group following a period of organic and acquisition driven growth. With EAAS, Sinclair says that he identified the opportunity across the energy service space as it was highly fragmented and also saw businesses or institutions at a loss as to how to deal with getting to net zero. The strategy appears to be paying off and revenue growth over the last few years provides for a glimpse of the potential on offer here as a growth play, in a spot that is continuing on a northward trajectory. This has seen the £3.9m revenue figure of 2019 move to £4.5m last year, with an expected jump to £13.8m for the year in progress. Announcing its Interim results earlier this month, the company delivered very strong growth which saw a 245% increase in revenues to £6.8m and a small profit being achieved. On coming to market, the company was quick off the mark to snap up a small competitor which Sinclair says was a great addition. They were, he adds also very keen to acquire one of the top 20 procurement businesses and this was achieved in December of last year with the purchase of Beond. This is a well established energy, consulting and procurement business with a firm focus on renewable energy. The buy looks a good one with Beond boasting a 95% customer retention rate and provides obvious crosselling opportunities for EAAS t o leverage the model. Despite that significant purchase being achieved, Sinclair isn’t about to sit back any time soon, as with the energy tide firmly in its favour he is eyeing further purchases. “We are currently looking at something else in the lighting space along with a smart metering business that we have identified. What we want to do is to be enabling behind the smart metering measurements, in order to provide our customers with a dashboard that can show exactly where they are using their energy and identifying savings”. Such a move would no doubt be beneficial to other aspects of the operations and provide scope for additional business. Although EAAS is already active across schools, to date it hasn’t been involved with the likes of Universities, but that, according to the CEO is the next area to target for growth along with other further education establishments. Sinclair adds that they are also now doing a lot across healthcare which provides for enhanced growth opportunities and they are already involved with private clinics. “This is a big growth sector for us and we are currently assessing a private hospital where there are forty in the group. If we win that one, we can go on and win all of those, so there is plenty to concentrate on”. Looking beyond the current year broker N+1 Singer is forecasting revenue of £19.2m for full year 2022 with EBITDA at £2.6m, moving to £22.6m and £3.9m in 2023. Whilst such forecasts should be treated as ever with a degree of caution, the trend and increasing pace around the greener energy space sees EAAS well placed to further deliver. Although for the year in progress the company’s adjusted pre-tax profit is forecast to be negligible, next year it is expected to come in at £2.3m moving to £3.5m in the following year. Importantly, cash generation should begin to build with an expected free cash flow yield of 4% and 6.8% with net cash swinging from £1.9m in 2022 to £4.9m the following year. Those numbers do not however include the likely prospect of further bolt-on-buys which would no doubt be strategically earning enhancing. Sinclair says that further acquisitions would be achieved through a combination of shares being issued, along with a small element of cash and possibly some debt with earn-outs very much tied in to any deal. EAAS shares currently trade at the top of their 52 week range, where standing on a punchy rating and with a market cap of £65m they arguably look to this writer, for now at least, up with events. That said, it is making rapid progress in a fragmented space that is throwing up some significant opportunities for both near and longer term growth prospects, so to that end it remains one for me to monitor.
- martinflitton1