Apologies to all for another long post.
Management is damned if it does, damned if it doesn't. They continue as-is, and were complaining about persisting with a distracting, loss-making retail enterprise that has little to do with DEL's long term plans. They pull the plug, and were complaining about loss of revenue and growth. After seeing your AFR article (thanks for copying and pasting the text for us) it seems wise and prudent to get out of this business division sooner rather than later. I read a few months ago about energy resellers blatantly telling its customers to go elsewhere.
https://www.9news.com.au/national/australian-energy-provider-reamped-energy-tells-customers-to-leave-before-prices-double/1df5fcd6-dde5-493b-8d7d-1e4c662ae7ee
I would have little complaint if this had been announced a week ago, prior to the funding announcement. Or if it had been briefly alluded to with the EOFY reporting. Surely this idea hasn't just come up in the past couple of days. And no 2023 guidance was provided with end of financial year results recently. Yet somehow, a few short weeks later, Delorean is able to predict and provide revenue, and announce an expected loss, for energy retailing for the next 9 months into 2023. It's funny (not humourous) how DEL is able to quickly provide precise 2023 negative forecasts, when it supports a strategic decision it wants to make, but not when it has an opportunity to update the market about the true state of affairs in its annual report. Now, the winding down of the retail division is trumpeted as being "earnings accretive" -- not due to increased profits, but because a previously unraised $700k loss won't be sustained.
I think DEL avoid needing to provide quarterly financial statements to market because we're a profitable business. "Five straight years of profitability" or the like, has been mentioned in interviews. Unaccountable, and opaque, are two words which also come to mind.
I vaguely remember also how the ASX queried DEL soon after listing about information in its prospectus which was at odds with information released subsequently. Dabozza, in his excellent analysis, and Emptytrolly discussed it in earlier threads, and we (Hot Copper) eventually wrote the issue off as a one-off compliance oversight and nothing sinister.
I am kind of glad this fossil fuel reseller nonsense is gone. It never made sense to me. I recently spent a lot of time researching a small ASX uranium company. They will begin production in 12 months' time in SA. Many months ago, they spent tens of millions of dollars buying uranium on the spot market to increase customers' confidence they're able to supply (their own) product, as contracted, next November when their mine is operational. The value of the physical uranium is up considerably too. That's a smart strategy. Of course, uranium is easily stored and not perishable. Selling your own green gas/electricity is smart. Getting involved in hedging, derivatives, future energy prices, and trying to make a profit off the difference between other people's electricity and what you can sell it for... questionable. If Delorean isn't selling its own green energy, it's just another reseller, selling a commodity -- where the generators have the upper hand and there's no competitive advantage. At the mercy of unpredictable spot prices and client contracts. It's also borderline dishonest for a supposedly green company (one of the top 25 on the ASX, we are told) to be using its green brand to primarily sell fossil fuels. Maybe that was Palisade's argument too.
I suspect DEL has been trying to do too much. They've got 30 employees and experience building one plant in Perth. They then take on reselling (supposedly green) energy, which is a complex business in which they have little experience. They're planning and constructing bioenergy plants all over Australia. And dealing with compliance issues, inflation, finance, and contracts with suppliers (the NZ cost blowout) and customers (the BLM penalty fees). Trying to be an engineering and construction company and win new EPC builds. And deal with various levels of local, state and federal government. They've spread themselves wayyyyy too thin.
Hamish mentioned that construction of the two plants will begin in the first quarter of 2023, for what it's worth. That could still be 4 months away. Both plants could be nearing completion around Christmas next year. Hopefully, by then FID will have been reached on a couple of the three sites which Palisade has an option for. Certainly QU,1 but I'm not sure if NSW1 is the Horsley Park Brickworks site or if that's a separate site to NSW1?
I can see a clear pathway to a successful business. Hamish has said that when DEL is paying regular dividends from the B.O.O.M. sites the current share price will be much higher than today . He's correct, but that's a long way off. One needs to try to look through the current events (noise?) and trust that more plants will be successfully completed -- hopefully on time and on budget. Once projects are completed, if energy prices plummet with a massive increase in supply in Australia we're in trouble. Very, very unlikely with power prices set to double in the next three years!
I agree that management seems to be learning on the job and shareholders are paying for it.
The real risk is not the loss of retail/reselling (probably a positive, if not at least disappointing), or the Palisade B.O.O.M. projects (definitely a positive), but the $45 million Yarra Valley project. If the cost blows out and we're on the hook for millions in penalty fees, we're in real trouble. There's no reward of ongoing electricity generation to sell. Just the sugar hit of -- hopefully -- a one-off profit on construction. Plus the ongoing maintenance and support, I guess.
I was greatly encouraged to see the BLM and NZ projects both completed and operating as expected. It proves we are able to plan and delivery the projects.
LCE, You say you went out to the VIC1 site? It's a pig farm on private land, right? I went to the SA1 site recently. It has a dozen large, mature gum trees on the site and temporary fencing (no Delorean signs though) around the land.
I suspect the issues will get resolved, with a lot of teething problems along the way. Once we've got actual assets on our balance sheet which are producing real income, things will be very different. It's a matter of trying to look through the short term noise (for want of a better word) and reduce one's expectations of management. That is, expect that they're not going to get everything right. Or sell one's shares. On a risk/reward basis, I think it's worth hanging in there and seeing what happens. With the financing in place and proven ability to deliver operational plants, even if they stuff up a few things, massive ESG tailwinds and rising energy prices should cover a multitude of management sins.
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