ERM Power: US Update And Focus On Energy Solutions
Edison | Jul 02, 2018 12:51AM ET
ERM Power's (AX:EPW) 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 have 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). Overall, our FY18-21e EBITDA forecasts change by -6%, -14%, -9% and +7% respectively. Our base case valuation, which includes core Australian business only, is unchanged at A$2.6/share.
Focus on energy solutions; lower US forecasts
ERM Power’s energy solutions business provides value-added services to its commercial and industrial (C&I) supply customers, including solutions to improve energy efficiency, reduce costs and improve customers’ environmental footprint. Based on our analysis following an investor briefing, we estimate that the medium-term development of the energy solutions activities could drive up to 40% growth in group EBITDA and 16% in a mid-case scenario. We have increased our medium-term forecast for energy solutions, but reduced the short-term estimates for the US activities following the latest trading update, which guided for lower margins and volumes. Overall our FY18-21 EBITDA forecasts change by -6%, -14%, -9% and +7% respectively.
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ERM Power: US Update And Focus On Energy Solutions
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