Cybersecurity Investments And European Expansion Will Drive Future Opportunities In Energy Markets

Key Takeaways

• Expanding global capabilities and cybersecurity investment could boost future revenue and differentiate services, improving net margins.
  
• European expansion and focus on acquisitions signal growing market share and long-term earnings potential.
  
• Rising employee expenses and ongoing investments might compress net margins, with increased competition potentially impacting revenue growth and profitability in the short term.

Catalysts

Provides software products, outsourced operations, and advisory services to wholesale energy, environmental, and carbon trading markets in the Australasia, and Europe.

• Energy One's strategy involves expanding its global capabilities, emphasizing its one-stop-shop approach to provide comprehensive coverage for energy and renewables markets, which could boost future revenue growth.
  
• Continuing investment in cybersecurity and risk management, like securing ISO27000 certification, positions the company as a trusted vendor to acquire more prestigious accounts, potentially improving net margins through service differentiation.
  
• The expansion in Europe, particularly with products like eZ-Ops and increasing intraday trading volumes, indicates a growing market share and increased revenue potential.
  
• Revenue per employee grew 11%, highlighting improved operational efficiencies that contribute to higher net margins and earnings scalability.
  
• Increased focus on acquisitions, global CRM systems, and enhanced marketing efforts aim to drive significant ARR growth, exceeding 20%, with a direct impact on revenue and long-term earnings potential.

Energy One Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Energy One's revenue will grow by 15.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.9% today to 18.8% in 3 years time.
• Analysts expect earnings to reach A$16.3 million (and earnings per share of A$0.43) by about April 2028, up from A$4.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.5x on those 2028 earnings, down from 79.2x today. This future PE is lower than the current PE for the AU Software industry at 61.5x.
• Analysts expect the number of shares outstanding to grow by 0.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

Energy One Future Earnings Per Share Growth

Risks

• Rising employee expenses are noted, having grown by 8%. This could potentially affect net margins if not matched by proportional revenue growth.
  
• The company reported flat absolute expenses, yet with normalized 5% growth. If this rate outpaces revenue growth, it could compress earnings.
  
• Energy One plans continuous investment in growth opportunities and innovation, which may limit the potential for immediate increases in net profit margins.
  
• Increases in competition, notably in algo-trading and within the German energy market, could impact revenue growth if competitors seize market share or introduce more competitive offerings.
  
• The company's ability to manage costs tightly is highlighted as a focus, yet there’s acknowledgment that ongoing investments may be necessary, which could result in fluctuating net margins or profitability in the short term.

Valuation

• The analysts have a consensus price target of A$11.2 for Energy One based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$86.8 million, earnings will come to A$16.3 million, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of A$11.16, the analyst price target of A$11.2 is 0.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.