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05 Dec 2022
Good Energy : Potentially transformational - Buy
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Good Energy : Potentially transformational - Buy
Good Energy Group PLC (GOOD:LON) | 255 0 0.0% | Mkt Cap: 46.5m
- Published:
05 Dec 2022 -
Author:
Martin Young -
Pages:
13
Trading to the end of October was in line with expectations. Conditions through the early winter have been generally mild and windy, reducing domestic gas consumption and softening short term market prices. GE’s risk management actions, taken to manage the volatility experienced in the wholesale energy markets throughout 2022, have been successful to date, and if these prevailing market conditions continue for the remainder of the year, GE is confident in delivering in line with expectations for the full year.
GE has acquired the entire share capital of Igloo Works Limited, a UK based heat pump installation business, for an initial consideration of £1.75m. We view this as a significant milestone in delivering on GE’s strategy to accelerate its capability in decentralised energy services.
It puts GE into the growing heat pump installation market, with ED2 business plans (Figures 1-3) suggesting c.2m installs by 2028 across GB. The government ambition of 600k annual installs by 2028 is supportive.
We understand that GE is targeting c.500 installs in 2023, scaling up to 12k by 2026. The current install price is c.£15k, the upper quartile of installs over recent months (Figure 4). We understand GE is looking to bring this down to c.£12k. A 40% gross margin/high single-digit EBITDA margin is targeted
Scaling the business, and benefit from economies of scale will take time, and we expect earnings dilution in FY23E and FY24E, but significant accretion from FY25E (Figure 6). We consider system design, efficient installation and a quality maintenance offering as three necessities in the ASHP business, and if GE can nail all three, then there is the potential for this to be transformational.
Valuation updated to reflect 50% of the buyout mechanics of the incentive plan, but with an increased target price of 420p we reiterate our Buy.