Locality Planning Energy Holdings Ltd (ASX: LPE) is a fast-growing authorised Australian energy retailer based in Queensland supplying electricity to Australian consumers, with a focus on providing electricity to strata communities through an embedded network. After trading as high as 85c early in January, they were down 31% to 59c in trading today.

What Is An Embedded Network?

Under the traditional method of supply, every user pays for network charges. With an embedded network, Locality installs a parent meter and signs the strata community to an average contract length of 7.2 years. The network charges are divided across all individual customers and can help in generating in savings of up to 25-35% for users.

Embedded Network

 

Has Growth Slowed?

On Friday 25 January, after the market had closed and before a long weekend, the company released its quarterly cash flow statement to the market and quietly let slip that their revenue forecast of $44 million for FY19 had been downgraded to $32 million. There are two reasons:

  1. Due to a material reduction in costs of goods sold which is passed onto customers in full by law.
  2. Delay in access to working capital to fund expansion.

Bad Timing Or Good Timing?

A shareholder could be well within their rights to be critical of the announcement before the long weekend, with the cynic suggesting the company is trying to hide some bad news by hoping it will be missed over the long weekend.

However, the world’s greatest investor Warren Buffett prefers all price sensitive news to be released on a Friday after markets have closed, allowing shareholders time to absorb and digest the news.

Are LPE Shifting Goal Posts?

My personal view is that there is nothing wrong with the timing of the announcement.

However, with two variables cited as the reason for the revised revenue forecast it is difficult for a shareholder to work out how much the forecast has changed due to a reduction in costs of goods sold and due to lack of working capital.

The former has no negative impact on the company while the latter is detrimental to the company meeting previously guided expectations to shareholders. It leaves shareholders in the dark, as the news may not be as bad as it seems, or it could be as bad as it seems!

Locality has previously reported on its energy under management in its quarterly cash flow updates, which is a better measure to see how the company is tracking given margins have essentially remained the same. With the energy management under use left out of this quarter’s update, I wonder if there is a shifting of the goal posts with missed expectations?

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).