Energy Action Limited


EAX Details

Efforts to revamp growth track: Energy Action Limited’s (ASX: EAX) reported that they launched energy metrics platinum for enhancing core solutions. The acquisition of Ward Consulting and Exergy and Energy advice has helped the company to expand business. Moreover, the group has capabilities to cater to clients as well as offer value across the energy management lifecycle. Meanwhile, the company’s offerings include Ative8, an energy monitoring and contract management services including energy consumption monitoring and costing, energy emissions monitoring, contract administration etc. In addition to this, the group offers project advisory services. The company is investing in adjacent categories like Microgrids, building efficient upgrades and big data and structured data products. The business is growing as broker penetration continues to expand and company is extending its core solution via client segmentation. On the other side, EAX revenues grew at a CAGR of 26.6% since FY09. For the first half of FY16, the company reported rise of 11% in revenues to $17.4 million driven by PAS as the segment delivered a 49% year on year (yoy) growth. It paid dividend of 2.8 cents per share.
 

Client Segments and customized offerings (Source: Company Reports)
 
But, the group’s NPAT declined 4.3% on account of lower margin products and high financing costs. Procurement revenue also fell over 2% during the period due to rising competition from electricity tenders. Still, the stock has rallied over 52.9% in the last six months (as of August 11, 2016) placing them at higher levels. The company has guided for NPAT of $3.4 – 3.9 million for FY16 as compared to $2.6 million in FY15. EAX’s full year results are due on August 18, 2016 while the company trades ex-dividend on August 24. We believe that investors can take profits on the stock and hence we recommend a “Sell” at the current price of  $1.315
 

EAX Daily Chart (Source: Thomson Reuters)
 
Energy Resources of Australia Limited


ERA Details

Performance pressure with impact from uranium prices: Energy Resources of Australia Limited (ASX: ERA) has deferred its half yearly (ended on June 2016) financial report while highlighting for weakness in performance with 11% drop in revenues from sales of uranium oxide reaching $154.45 million as compared to June 2015. Revenue from ordinary activities was down 8% to $170.5 million. But, the group enhanced its cashflow from operating activities by 39% to $19.69 million and has built solid cash resources of $ 453 million as on June 2016. Meanwhile, Uranium is a major product of the company and the prices have been increasing recently. ERA operates Ranger Uranium Mine in Kakadu and the company has been performing further underground operations at the site. This is irrespective of the move from environmentalists who have been trying hard to scrap ERA’s Ranger 3 Deeps project. Due to soft prices, ERA decided to review the Ranger 3 Deeps project on periodic basis. Environmentalists have called on ERA to formally withdraw any proposed expansion plans at the Ranger Uranium mine and focus on rehabilitation. The company is trying to fully rehabilitate the site by 2026 at an estimated cost of $509 million. On the other side, the major shareholder of ERA, Rio Tinto, made a $100 million loan offer to ERA to make-up for any potential shortfall in rehabilitation costs with a condition that further mining has to be proceeded with its prior approval.
 

June quarter highlights (Source: Company Reports)
 
ERA stock rose over 5.9% in the last four weeks (as of August 11, 2016). However, Uranium prices might witness softness in the coming months which would pose a pressure on the company’s revenues. Additionally, the company is facing pressure from environmentalists for further processing of uranium from Ranger 3 Deeps project. ERA has stopped mining at Ranger in 2012 and the company has been focusing on processing uranium ore as it prepares for the lease expiry in 2021. Meanwhile, Rio Tinto owns ~68% in ERA and any write down in assets would result into high impairment costs affecting the bottom line. Further, ERA expects to record a non-cash impairment charge of not less than $40 million for the half year ended June 2016, which may even increase significantly. We recommend investors to leverage the recent stock rise as an exit opportunity and accordingly we give a “Sell” recommendation at the current price of  $0.355
 

ERA Daily Chart (Source: Thomson Reuters)

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