Your insights are great, thank you, and it's clear you have a deep understanding of the subject.
However, I might not fully align with the view that there's limited profitability across all embedded networks, despite acknowledging that increased energy costs and stringent regulatory standards have compressed margins in recent times. It's important to note that while residential electricity margins are considered reasonable by the AER at around 11%, many embedded network providers enjoy margins exceeding 40%. Yes, these margins are decreasing, but they're adjusting to levels that remain both reasonable and sustainable.
The perspective presented by LPE, suggesting that customers are inherently "sticky", is both risky and overly simplistic. Offering subpar deals is fraught with danger. Customers might be technically "stuck," but the entities allowing you access to these customers, such as the Body Corporate, can easily choose to end their association with you. This risk is amplified in the embedded network space, where losing a single client could mean losing access to a substantial number of customers at once. This highlights the importance of fair dealings and maintaining reasonable margins.
A common practice within the embedded networks sector involves developers entering into agreements with providers, where the provider compensates the developer (or invests in unrelated infrastructure) to secure the contract. This cost is then passed on to the customers through higher rates, essentially having them pay more for the provider's right to the deal, a scenario that ultimately disadvantages the customer.
It's important to remember that electricity is an essential service.
Whether for on-market or embedded network providers, there's a moral and ethical responsibility to ensure fair pricing, adequate protections, and compliance with regulations. In essence, and particularly relevant for investors, LPE's business model is indeed be viable and sustainable, provided they move away from the misguided belief in customer retention without effort and focus on retaining their social license to serve their customers. This may necessitate lower prices and potentially reduced profits (especially considering their lack of profit thus far). For sustainable growth, it's imperative to scale operations appropriately, avoiding the pitfalls of overpaying senior staff or maintaining costly office spaces. While I share your sentiments to a great extent, I remain optimistic about the viability of embedded networks as a business model.
Regarding your mention of Shell, I'm curious about the basis of your statement. Any acquisition would require a delisting, which could indeed interest shareholders. However, it's worth mentioning that a significant number of shareholders, possibly including some in this forum (though not myself), bought in at much higher prices and would require a compelling offer per share to engage in such a deal.
LPE Price at posting:
3.8¢ Sentiment: Hold Disclosure: Held
