So I thought I should share my thoughts on the recent announcement by Energy Action (ASX: EAX).

The company has said that they now expect NPAT of approximately $5 million. The supposed reason for this is that the Sustainability Solutions business has grown only about 40% (which shows how optimistic their original forecast must have been).

I'm annoyed with the company for a variety of reasons. First of all, they should be making conservative forecasts. Second, they should have foreseen that Tony Abbott would remove incentives for energy efficiency. Third, the Directors have been selling shares. Fourth, the company has been paying consultants to help it a) restructure is sales team; and b) Expand the Sustainability Solutions business.

What is required is more corporate discipline. Let's hope the new CEO stops the company haemorrhaging cash to corporate advisers and does the job he is (very well) paid to do.

Anyway, so like any good stock market opportunist I dumped 60% of my holding this morning (probably should have dumped them all). Currently, I'm reverting to my old valuations: I basically consider the range $2.80 - $3.35 to be too low to sell and too high to buy. If the share price slips below $2.80, there is an extremely high likelihood that I'll buy shares.

If the share price heads up to $3.50, I'll probably sell half my remaining holding (leaving me with 20% of my original holding).

So what have I learnt?

Well I've learnt that I should probably lighten my holdings when I consider a share price overvalued. However, it is a bit of a philosophical question because as regular readers will know, I've traded in an out of Energy Action before. At the end of the day, this is a learning process.

Should I have sold at $4.20 (prior to the downgrade)? Most likely: one teacher of mine downgraded Energy Action because of the director selling, and I have to say, I was tempted to sell at above $4, because the insiders were selling at $4.


The Author owns shares in Energy Action. Nothing on this website is advice, ever. This post is for entertainment (and for my own reference!)

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Damien - August Investments  8 years, 6 months ago Reply

Good summary.

Question is, with the possibility of growth now removed, what is a reasonable level to hold EAX shares just for the earnings and the dividend yield.

To achieve an earnings yield of 6% the shareprice needs to be about $2.75, which is where Ethical Equities buying level cuts in. this would be a PE of 16.2 and the dividend yield would be 3% (not bad, given the 50% retention rate). If all remains steady, which seems likely, future internal growth of about 16% can be expected.

It seems reasonable to hold EAX as an income equity if the price is right, and it would seem to be at the level discussed. There are growth prospects here, but in the future when there is a government which is not trying to turn back the clock on sustainability.

Mr Black  8 years, 4 months ago Reply

what are your thoughts on their valutation now?

Half yearly results out. Revenue up, NPAT, very slighly down. But lots of cash in the bank.....

Claude Walker  8 years, 4 months ago Reply
8 years, 4 months ago Reply

Good question.

The truth is I haven't had time to read the report, with so many companies reporting around now.

I had a quick scan of the results when they were released, and my instinct was that no change to my opinion was immediately required. What are your thoughts?

I hope to have an update for inclusion in the next Newsletter.

Mr Black  8 years, 4 months ago Reply

My thoughts are, that growth is stagnating (which was to be expected with carbon being repealed), and now there is a big pipeline of contracts to be renewed over the next 12 months. Additionally, they have a lot of cash in the bank, and they acquired a small business around this time last year, would not surprise me at all if a new acquisition was on the cards. Think its a hold for now, but with still very good growth prospects.

Mr Black  8 years, 3 months ago Reply

buy buy buy :)

Mr Black  8 years, 3 months ago Reply

Acqusition just announced. Expecting a jump tomorrow.

G Dwyer  8 years ago Reply

What would your thoughts be on the current decline in these shares? I am finding it difficult to understand without any announcements being made.

Claude Walker  8 years ago Reply
8 years ago Reply

Me too. Pretty glad I held on but it doesn't surprise me that the share price is drifting down. Growth appears to have halted and the new management team is a bit unproven at this point. Seems to be a wholesale changeover with the founders handing over, selling down etc.

Keeping a holding as a "wait and see" kind of proposition. Hard environment with anti-energy efficiency governments in office everywhere except ACT and SA (I think).

However we do have the impending gas price rort which should drive demand for gas broking services.

Claude Walker  7 years, 10 months ago Reply
7 years, 10 months ago Reply

I will sell my remaining EAX shares and remove it from the Hypothetical Ethical Portfolio in the first bit of trade today. Awful results, focus apparently is on the low margin business.

Claude Walker  7 years, 10 months ago Reply
7 years, 10 months ago Reply

Energy Action will be removed from the Hypothetical Ethical Portfolio at $2.99, just under the opening price today.


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