Shifting energy market sparks business turnaround

Energy has been a hot topic in Australia for the past few months as prices rose on the back of high inflation, even prompting the Government to step in and introduce a price cap on some energy costs. Even with this respite, Australians are likely to have learned a hard lesson or two about being savvy with their energy usage and management.

Among the possible solutions to rising energy prices, embedded networks are touted to offer potential all round benefits such as lower costs for developers and consumers, revenue generation for building owners/strata companies, and better monitoring and maintenance overall – enter Locality Planning Energy Holdings (ASX: LPE).

Speaking on Reach Markets’ The Insider: Meet the Fund Manager in June 2022, Equitable Investors’ Martin Pretty, CFA, highlighted the Queensland-based energy services provider as one of his three favourite stocks. Watch the full The Insider: Meet the Fund Manager session.

“This company, Locality Planning Energy, is actually recapitalising itself without raising money from investors. It’s a very unique circumstance,” he said, before recounting LPE’s foray into the energy retailer landscape, how the company operates and the macroeconomics that drove a restructure subsequently leaving LPE with $29.4 million in cash and net investments/value (February 2023).

According to Mr Pretty, LPE’s actions were ‘very smart’ considering the company’s decision to wind down their retail energy business brought $8 million in guarantees as LPE’s retail customers switch to other energy providers, putting the company in a net cash position, with 28,400 contracted customers worth more than $1,200 each.

“We think that if those numbers are correct…their share price for us is very very attractive at the current price that we’ve been accumulating,” he said.

Justin Pettett, Non-Executive Chairman of LPE joined Reach Markets’ The Insider: Meet the CEO session in February 2023 where he talked through the company’s turnaround strategy and explained why he thinks LPE is positioned favourably in Queensland’s growing embedded network landscape.

Watch the full The Insider: Meet the CEO session.

“The energy market last year gave us an opportunity…we had to back out of the on market side of the business. We just could not keep up with the cash that was required…as the spot price of electricity started to go into areas it had never been before,” Mr Pettett said.

LPE took the opportunity to close out its hedge book for $17.8 million and extinguish its debt with BlackRock. The company also has $5 million invested in the Bundaberg BioHub, generating a 15% return, and is working with the latter to get the investment repaid before the end of FY23. Along with a $10 million growth facility and the current turnaround strategy in place, the company expects to transition to profitability in FY24.

“This year we’re on track to meet our $40 million in revenue..the guidance that we gave earlier in the financial year,” Mr Pettett said.

As an embedded network operator, LPE aggregates individual meters in a community dwelling, such as an apartment building, behind a parent meter or business meter facing the market and paying network charges.

“Two-thirds of your electricity cost or your bill is network charges, so where we’re able to change that, we distribute that saving to our customers,” Mr Pettett said.

According to the company, 12% of Queensland’s population live in apartments or strata communities and the strata communities eligible for embedded networks use ~$1.2 billion worth of electricity per annum.

“It’s a growing market and we’re involved with developers and new buildings. Our largest growth corridor at the moment is takeovers…existing embedded networks who are with a provider they’re not happy with, they come across to LPE,” Mr Pettett said.

With the company fully exiting the energy market business, its outlook is to continue growing the embedded network business organically while pursuing merger and acquisition opportunities for consolidation in the market space.

As at 24th February 2023, LPE was trading at a 70% discount to the sum of the parts value, ignoring the value of its unique IP and brand in the strata market. Also at the time, Mr Pettett and CEO Damien Glanville held 10% of shares between them and featured in LPE’s top-5 shareholders.

Click here to view more videos from Martin Pretty’s The Insider: Meet the Fund Manager session, or click here to view the full The Insider: Meet the CEOs session with Locality Planning Energy Non-Executive Chairman Justin Pettett.

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