Good Energy Group Plc’s (LON:GOODG) unique equity proposition is its combination of renewable generation capacity with a growing retail energy business. All energy sold to customers is sourced from renewable sources, with approximately 19% generated by its own solar and wind farms and the remainder procured via long-term contracts from third-party renewable generators. The stock is attractively valued in comparison to its forecast high level of growth.
FY16 earnings show delivery on the plan
Good Energy increased its EBITDA in FY16 by 39% from £7.3m to £10.1m. Operating highlights included increasing its electricity customer numbers by 5% to 71,486 and its gas customer base by 14% to 44,107. Furthermore, the company sold the 5MW Oaklands solar site for £5.8m, which will further improve the net debt position, already decreased to £52.2m from £54.0m in FY16.
Growth in premium customer base key
Good Energy continued its strong track record of growing EBITDA and customer numbers. On a standalone basis, the earnings story is attractive and reasonably priced. However, we believe there is long-term value in the customer base. Good Energy’s customers pay a premium on their power bills due to the 100% renewable guarantee. 2017 will see the completion of the new customer information and billing system, providing a platform to launch further new product offerings. We note that, at group level, gross margins have been more than 30% for two years.
Consensus estimates: Realistic continued growth
As renewable generation and supply activities expand, Good Energy is expected to grow its consensus EBITDA, from £10.1m in FY16 to £10.7m in FY17 and £12.1m in FY18. Given 39% growth in FY16 and with gas and electricity customers continuing to grow, this growth trajectory seems realistic. Consensus suggests growth in adjusted FY17e EPS of 13.6%, increasing to 50% in FY18. Dividend growth is expected to be 3.0% in FY17 and 8.8% in FY18.
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