Locality Planning Energy Holdings Limited (ASX: LPE) is an SE Queensland based company who provide a consolidated metering and network service to strata buildings. Effectively LPE is an energy retailer and manages an embedded network on behalf of the strata. By installing a head or parent meter, LPE cut down the multiple network and meter connections a standard strata building would have with an energy distruibutor to a single LPE connection point.
Having this singular point leads to a significant reduction in network and meter charges. These network and meter savings allow LPE to pass on significant savings to strata communities. Typical savings range anything from 10%-30% for individual unit owners and the powering on communal areas gyms, pool pumps, hall and stairway lighting etc all of which feedback into strata fees charged to unit owners.
This indivual unit owners can save on the double effectively. The company also contracts with the strata committee for a contract length of anything from 5-10 years. This means they as more and more buildings are added they will have strong recurring and predictable revenues well into the future. The company operates an 18% gross trading margin which is excellent for its industry.
The excellant value propisition offered to strata communities by LPE means it has just reached over 100GWH of contracted agreements. This milestone was achieved 14 months ahead of management's guidance. The company is adding circa 7/8GWH to its base every month currently and management have guided to being cashflow positive in July 2017, given the nature of the revenues and cashflows this should guidance should be made with a high degree of certainty. The company has a stated goal of reaching 450GWH by 2020 and given the current run rate that seems acheiveable.
The main impediments to growth are the capex involved installing the head or parent meter. However recent capital raise and an anticipated debt facility should see them fully funded for their growth target of 450GWH. Keys risks are competition from other players given the margins being achieved. Contracting risk between LPE and the distributor on one side and the strata on the other side with regards to both eletricity demand and electricity pricing. However the founders have a long track record in the energy business though we would expect that they can manage the duel risks of pricing and demand forecast adequately.
LPE today has a share price of 2.3c, a market cap of $51mil, approximately $4mil of cash and is approaching positive operating cashflow. Combine the above with an attractive end customer value proposition, a large addressable market (management believe they have currently 1.5% of SE QLD strata market) a solid execution of the company strategy to date and possible expansion into the NSW, to me its interesting.
I focus on ASX listed microcap and nanocap stocks which is anything from $10mil to $300mil market cap and everything in between. This truly is the under-researched part of the ASX. My hope is to bring you interesting microcap stocks and news.