Ann: Trading Update , page-10

The guys that handled the capital raising think all is going well


Ecosave – Capital Raising


Ecosave’s surprise July purchase of US business DVL Automation (DVLA) for US$4.2 million has opened a big can of opportunity for the Sydney-based energy and water gurus.

The company has gradually attracted attention for its clever approach to winning energy performance contracts, mainly from Victorian and NSW government tenders. But it is taking this template to the US where it can access a much larger market for energy services in conjunction with DVLA’s building management expertise.

To gain an effective entry into the US market, however, requires DVLA to provide asset financing to customers to fund the leasing of necessary equipment such as cogeneration equipment, chillers and power equipment.

The payback on such leasing deals at 3-5 years is typically much quicker than the payback on energy performance contracts which are usually 7-10 years.

Importantly, it removes a barrier for customers to sign up to an energy performance contract and opens the way for them to reduce or improve energy consumption with consequent savings.

Ecosave has raised 2.3 million of working capital to kick start this opportunity in the US where energy performance contracts are more widespread and commonplace than in Australia.

DVLA generated A$10.1 million revenue in its 2012 financial year and was profitable with a net profit after tax of A$513,000.

Adding Ecosave’s expertise in EPCs across DVLA’s competence in building management solutions appears to be highly complementary with some of the latter’s expertise likely to be adopted in Australia.

An interesting sweetener for Ecosave this year is the possibility of winning further EPCs from the NSW government which has added Ecosave to its short list of preferred suppliers. The NSW government closely watched the Victorian experience and has emulated much of that structure to provide its own departments with access to the same professional outsourced energy performance contracts.

With Australia’s two largest states now deeply engaged in this type of activity, Ecosave is in a very good position to benefit.

The decision by Ecosave earlier this year to pursue, and win, four new EPCs worth $16 million resulted in the deferral of some expected FY13 revenue slipping into FY14. This was the reason for the company missing its Prospectus forecast revenue but we feel was a genuine and fully justified explanation.

Ecosave now has multiple revenue and earnings opportunities on the go and has been fortifying its management team with skilful and experienced individuals along the way. This ticks another crucial box in determining the company’s ability to execute its strategy and deliver results. The bar is going up!

Financially, Ecosave remains in a strong position with its $5 million debt facility still largely untouched, minimal gross debt and cash balance over $5 million as at 30 June 2013.

The capital raising is specifically for the US business, hence the decision not to leverage the existing balance sheet.

In our previous notes on Ecosave, we valued the company between $1.50 and $1.80 per share, with a skew towards the top end of that range following the win of the four EPCs.

Ecosave has placed 1.6 million shares at $1.44 per share through Kimber Capital with several new institutional shareholders indicating robust support for the company’s strategy.

In our view, this looks to be a solid proposal and another intriguing step forward for this unique company.