Renergen Limited's (JSE:REN) Shift From Loss To Profit

With the business potentially at an important milestone, we thought we'd take a closer look at Renergen Limited's (JSE:REN) future prospects. Renergen Limited, an investment holding company, engages in the alternative and renewable energy businesses in South Africa and sub-Saharan Africa. The R1.4b market-cap company posted a loss in its most recent financial year of R53m and a latest trailing-twelve-month loss of R42m shrinking the gap between loss and breakeven. As path to profitability is the topic on Renergen's investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

See our latest analysis for Renergen

According to some industry analysts covering Renergen, breakeven is near. They expect the company to post a final loss in 2021, before turning a profit of R118m in 2022. The company is therefore projected to breakeven around 2 years from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 63% is expected, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

Given this is a high-level overview, we won’t go into details of Renergen's upcoming projects, though, keep in mind that generally energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

Before we wrap up, there’s one issue worth mentioning. Renergen currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of Renergen which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Renergen, take a look at Renergen's company page on Simply Wall St. We've also compiled a list of relevant factors you should further examine:

1. Historical Track Record: What has Renergen's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Renergen's board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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