Don’t worry about the lower figures reported in yesterday’s Interim Results from Good Energy (LON:GOOD) – its shares are substantially under-rated.
The group, which is a supplier of 100% renewable power and an innovator in energy services, reported a strong first half of the year during a period of normalised trading and stability, with solid profit in energy supply and promising indicators from consolidation in services.
Good Energy, which has long-term power purchase agreements with a community of more than 2,500 independent UK generators, saw its lower first-half revenues reflecting externally driven commodity costs,
CEO Nigel Pocklington, CEO, Good Energy Group PLC:
“As the energy supply market has normalised, we have shown strong profitability in the first half of the year, whilst our expansion into energy services is showing promise as we consolidate our offer to customers.”
“Having completed three acquisitions in the clean energy installation services space we are now offering solar, storage, heat pumps and EV charging across the South - a trusted, truly green brand offering whole greener home and business solutions.
Good Energy is established as the microgeneration specialist, with a significant market share of rooftop solar customers, leading export tariff rates and premium installation services.”
In a favourable policy environment promising an imminent ‘rooftop revolution’ as the new government accelerates the clean energy transition, Good Energy is well placed for growth.”
The Interims to end-June showed revenues down to £97.4m (£156.1m), with the pre-tax profit lower at £4.4m (£13.1m), slicing half-time earnings to 15.6p (72.0p) per share, with a slightly higher Interim dividend at 1.1p (1.0p) per share.
However, reflecting generated cash, the group’s balance was off just £1.4m at £39.9m (£41.3m) cash.
Analyst Views
Charles Archer at Kemeny Capital was spot on in his Research Report issued in early May this year, when the report stated that:
“Looking ahead Good Energy Group is well positioned to offer a differentiated green energy supply to homes and businesses, alongside premium high margin installation services of various renewable energy hardware solutions — and recurring services to maintain them.
2024 trading is so far in line with management expectations. While revenue and cost of sales are expected to be lower this year due to lower wholesale costs and associated tariffs, this does reflect a return to more normalised supply segment margin levels.
Energy services are expected to be a material profit driver by 2025, while Zapmap remains a segregated investment which could provide a large boost to the bottom line over time.”
Its shares were then 250p, with Archer considering that Good Energy’s growth potential is not properly reflected in the current valuation, putting out a 407p fair value target suggesting a 62.8% upside.
After yesterday’s Interim Results analyst Alex Brooks at Canaccord Genuity Capital Markets reiterated his Buy rating on the group’s shares, looking for 500p as his Price Objective, based on a ‘sum-of-parts’, which values the distribution and supply businesses separately to the services and Zap-Map EV mapping business.
For the full year to end-December, his estimates are for 20% easing in sales to £203.5m (£254.7m), but with profits 17.5%n higher at £6.7m (£5.7m), boosting adjusted earnings to 26.0p (17.0p) and enabling a 3.6p (3.3p) dividend per share.
A slight improvement in sales in 2025 to £205.3m, could see £10.7m profits and a lifting of earnings to 45.5p per share, with just a 3.9p dividend.
In My View
On the basis of the broker’s estimates the shares of Good Energy, now at 250p valuing the group at £45m, look to be incredibly lowly-rated, especially considering its potential to jack up its earnings by 75% in the next year.