The Ecosave IPO which many Kimber Capital clients had the opportunity to participate in at $1.00, commenced trading today at $1.40. Giving clients a fantastic 40% ‘paper’ profit on day one.
The companys first half results are due in early February.
Following is a reminder of our research commentary pre-listing:
Here at Kimber Capital we’re always on the hunt for great new investment ideas. These sometimes take the form of a new listing which allows us to gain exposure to a wonderful business for the first time. Energy Action (EAX) is a great example, going from $1 to $3 since it launched on the market in October last year. Investors fell over themselves to get hold of a growth story in a market where growth can be hard to find.
The growth thematic is the drive for energy efficiency in the face of ever-rising power bills. We’re excited to say that we’ve found another company that is riding the same train. It’s called Ecosave and we’re telling you now because it’s time to get on board.
Ecosave has a 10-year track record of growth, without a single loss against its name since 2005. The growth trajectory is still very much in place, with something in the order of 75% earnings growth likely to be delivered in FY13. We think there’s a lot more to come in the years ahead. On a FY13 PE of just 8.5X and fully franked dividend yield in excess of 4%, you’re basically buying a fantastic existing business at a reasonable price, with the longer term growth upside thrown in for free. Now that’s a compelling proposition.
So what do they do? Well, the concept is quite simple. Ecosave delivers guaranteed energy savings for its large corporate and government clients. This is done through an assessment of the current infrastructure and energy consumption of a major corporation such as a bank, or perhaps a large stadium. Out of the assessment comes a plan for re-working the infrastructure, replacing or indeed adding hardware such as lighting, electrical motor controls and essentially anything that will assist in making more efficient use of energy.
Ecosave has been in this business for over a decade and their depth of experience gives them two advantages over the competition. Firstly, they are able to sniff out energy savings that others miss, thereby winning more bids (which typically go to the “biggest saver”). Secondly, Ecosave is able to issue its bid with a very high degree of confidence, enabling the company to guarantee its expected energy savings. Such a guarantee is very attractive to clients, serving to again bolster the company’s win rate.
In terms of the track record, ecosave has a greater than 99.5% success rate on its savings guarantees.
What Ecosave does it does well. Conceptually it’s an attractive service because every corporation out there would like to lower their energy bills, as would we all. But sometimes good services aren’t employed because they just cost too much up front. Take a look at the payback period if you were to put solar panels on your house without a government rebate and you’ll know what I’m talking about.
There’s no such issue here. Ecosave’s projects typically have payback periods so short it’s quite simply a “no-brainer” to take them on. In fact, we have mulled over the idea as to whether they need a sales force at all! One of the company’s customers is NAB for example. The cost of the NAB project was $3.4m, but it delivered annual energy savings of $1.15m, equating to a payback period of just 2.9yrs.
Think about paying just 2.9X for a guaranteed annual earnings stream for a moment and you’ll see what a simple decision it is for a company to sign off on a deal such as this. But it doesn’t stop there. Once Ecosave has got a client on board, there is an ongoing relationship and continued earnings potential.
The customer doesn’t always take on the full scope of the potential energy savings, which may be completed in a second round of enhancements. There is also the progression of technology, which facilitates new savings and of course the upward march of energy prices which makes previously uneconomic options viable. Needless to say, this isn’t a business that will grow rapidly for a while and then fade away.
Now, Ecosave isn’t alone in this game. The major energy providers such as AGL compete against them. But the big boys are in the market to secure additional distribution for their core energy product. Ecosave has no such agenda and its independent status is a further attraction for customers and therefore also a competitive advantage.
Founder and CEO Marcelo Rouco is the driving force behind Ecosave. Marcelo built the business from scratch and he’d do very well if he simply cashed out now. But that’s not going to happen. His 70% post-raising shareholding will be in voluntary escrow for a year for one thing. But just between you and me, we’re pretty sure his vision for ecosave isn’t even close to half way done yet. He’s as excited as we are about Ecosave’s longer term potential. The great thing is that we’re all going to be able to share in it.