3/4
For me investors need to be a little careful expecting too much. Enerox (right now) is private and cannot call upon the markets to finance its business. That's down to its owners, who led by BMN, are to provide a "shareholder loan facility of €3.7 million to Enerox" in order to "provide working capital and funds for capital expenditure to enable Enerox to reach sustainable commercial production."
I take BMN on their official word but that sum of money isn't very much. Employing IES as a worthwhile comparison, they received £3.8m from BMN (so not too dissimilar to Enerox deal) but then went on to try to raise a further £20m upon IPO.
If Enerox stays private and has the same sort of ambitions as Invinity, then the owners are going to have to pay their way.
E.G. If BMN is holding 40%, then they may have to find c. £8m over the course of 2021, to fund Enerox's plans, which to date remain very close to their chest.
The sensible route would surely be to float it but there's been no mention of this to date. The next best choice is a benefactor who can take the majority of the strain.
Until BMN secured the Orion deal, they had very limited ability to fund any reasonable portion of ownership in Enerox. Post said deal, I would estimate that ability has gone up to around 20%. However, keeping Enerox private is risky, be it their plans for their future, remain even more private at this time.
Key takeaways for me are that the Orion deal, at the very least, widens BMN's options. Secondly, Enerox remaining private retains unnecessary risk. Thirdly, we do not know enough about what Enerox's future holds, which I trust BMN management is fully aware of and so there must be good reason for it. BMN cannot withold its final ownership percentage from the market for very long and the reason its being withhold, must be because it isn't yet concluded. So watch this space on that one.
Conclusion.
Some investors may see the opening segment of this post, as negative. That not expanding quicker is disappointing to them. I don't see it that way at all.
Given the progress made this year already, the signs are there that BMN (Covid interruptions aside, which must weighing a little on things here), will deliver over 4,000mtV in 2021.
I expect vanadium suppl to come under pressure during 2021 and that means prices are going to go north.
My estimates say that such output/sales and an average price of just $30 per kg (bear in mind with Vanchem product range on board, its far more complex these days), delivers BMN minimum $16-20m in 2021, based purely on mining and processing output. So no energy storage related influences.
Now that alone for me, delivers a good uplift in the valuation. However, most importantly, it gives BMN the security to drive that $30m in cash on hand harder and in a direction, that services the best interests of the business.
2/3
The speed with which Vametco and Vanchem develop will depend solely on the financial performance of the business. However, even without said profit, at my estimate of minimum $30m available cash (be it Vametco full cost of phase 3 is $26m and exact commitments to Orion on this aren't known at this time), there's plenty left in the pot for other things.
Also, as page 26 of the BMN FY 2019 states, Roskill expect vanadium to move back into deficit in 2021 and stay that way until 2023.
However, the report states this ;
" Roskill takes a conservative view on vanadium consumption in energy storage (through VRFBs), forecasting growth in demand between 2020 and 2027 from 500 mtV to 1,463 mtV. (The Rongke Power 200 MW/800 MWh VRFB project in Dalian, when complete, is expected to consume about ~5,000 mtV of vanadium.)"
Roskill is effectively, at best, stating that the VRFB market will only demand an additional c. 963mtV of vanadium over the next 7 years. Even when evenly distributed, which I am sure Roskill have not, that's just 637mtV in 2021 and c. 775mtV in 2022.
Dalian phase 2 alone, at c. 2,500mtV, delivers that alone.
We therefore have a situation where by BMN can afford to drive their next set of plans to conclusion, delivering that minimum 5,300mtV (be it that is an extremely safe bet, set against a 2025 target) and ensuring that Vanchem not only meets its regulatory commitments but also delivers the security of its production rate (more on that shortly).
In addition, the business has financial security, even at these current low V prices, right through 2021 and in addition (Orion buy in assumed), has cash available to drive other areas of the business.
Note - The reason I highlight said security of production rates, is because FM went out of his way to mention this in the Crux interview. We have already seen signs of this with the Q3 output at Vametco but also through Vanchems ability, to alter its product profile and deliver additional mtV, above and beyond its current advertised run rate (1,100mtV vs Q3 294mtV), when Vametco faces any headwinds (bad weather, power outages etc etc).
The completion of Vanchem phase 1 and the first furthzer de-bottlenecking at Vametco, will only go to compound that further. In a world where V is in deficit, a secured 4,300mtV output, is highly profitable for BMN and their shareholders.
"cash available to drive other areas of the business."
This is why i highlighted Enerox in my response on Friday.
https://twitter.com/BigBiteNow/status/1332347593423278082?s=20
There's been much discussion around actual percentage ownership of Enerox and the plans for said entity.
1/3
In response to Faramog (be it I cover more than that topic), both here and from our Twitter interaction
Good day.
I thought given the detail involved, I would respond to your Twitter reply here, if i may.
My view point.
In essence, the $65m investment by Orion, is designed to carry BMN through to their 2025 goal of 8,400mtV. However, BMN were very clear when the cash was raised, that it is for debt repayments, Vametco phase 3 and Vanchem phase 1. Hence why I stated 5,300mtV and not 8,400mtV.
That being Vanchem stead operating rate of 1,100mtV and Vametco at 4,200mtV = 5,300mtV.
As of end of June 2020, BMN had c. $24m in the bank and circa the same in debt (R375m). With the Rand strengthening, said debt is now closer to $25m (at R15 per dollar). To that we need to add cash outflows in H2 2020, which I believe will be less than H1 because said loss production from Covid is no longer in play, be it said threat remains. However, BMN also have a $6.15m payment to Durferco pending.
So once the $65m becomes available (no drawn down but available to draw down), then personally ( as a precaution and with a reasonable amount of caution built in) I will be booking around $20m as outflows for H2 + Duferco and working capital for FY 2021.
However, it really isn't of significant consequence at this time because of the following...
BMN's expansion plans will be driven by how the V market and demand for their products evolves.
It should not be taken lightly, that BMN are committing significant resources to expand their production, at a time when V prices are low and their operations at best, barely profitable and it is because of this that their plans are set up as they are.
If you look closely at the 2019 FY report pages 42 and 44, there we see that the Vametco phase 3 works is designed to deliver "a steady state production run-rate of 4,200 mtVp.a, by 2025."
This message was repeated by CEO Mojapelo in his interview with Crux this week but expanded upon with his comments about it being a de-bottlenecking exercise. So although, right now, its laid out as upto c. 4 year plan, in reality, benefit from, will begin to flow through much earlier.
Right now said phase 3 is at feasibility stage, which is strongly indicated to complete in H1 2021. Therefore, my current commencement of work (safe) target, is early H2 2021. Actual break downs for the $26m are still to be published, which I expect to happen, once the $65m finance deal is closed out. Likely early 2021.
The other big project is Vanchem, where the works to deliver a fully regulated and steady "production estimated at approximately 1,100 mtVp.a." are expected to complete in 2021 and come at a total cost of $14m. The spend on Vanchem commenced in H2 2020, so it is to be expected that said full sum needs to be accounted for, from our $50m 'available' sum.
So in reality, we are talking c. $36m, with Vametco phase 3 de-bottlenecking costs to be factored in, as 202
@Rahee Thats not my understanding of the Black Rock mining right process, which I discussed here (17th Sept).
https://twitter.com/BigBiteNow/status/1306579347122327553?s=20
Submitted 9th November 2018 (post DFS completion, same as ACP).
Received 26th Feb 2019.
So c. 3.5 months
Blackrocks process took longer because they decided to press ahead with their EIA, whilst they were completing their DFS, which is key to applying for a Mining Right and they didn't yet have.
ACP are 5 months in and so in theory the ACP license can land anytime now.
I simply don't see any reputable finance outfit agreeing binding terms, so long as a Mining Right is outstanding. Its a critical item for them.
2/2
Whilst doing so they can pick off the VRFB projects they choose supply wise. Focusing on the balance between VRFB support and profit. Knowing that at some point their rental model is going to be in much higher demand, as said VRFB companies begin to suffer cost pressures, that their own hard work has helped realise.
Either way, at some point along the road, the BMN business model and their first mover status, begins to win the day.
At some point in the not so distant future, BMN is going to be making really good profits on a revised +5,000mtV production base, just from the cyclical demand of steel.
However, it is the sacrifice that is being made now, that will deliver the sort of demand (a demand that circumnavigates the last big V demand problem, that being niobium), that will really catapult BMN to a level that we all want to see. That being self capitalised rolling expansion to +8,000mtV and beyond.
All of which completely ignores their own journey into the VRFB value chain and the benefits that they can accrue from it.
The biggest fight that BMN long term shareholders have on their hands, is with themselves and their ability to see this through.
It is completely understandable that the last 2 years has worn some down and dare I say the constant daily focus, does not help with staying the course.
Each investor is the king of their own investment lot and must always decide for themselves but for me, BMN has never been closer to realising that end outcome and the fruits of theirs and our labour, are just now beginning to show themselves.
The reaction to those latest IES contract wins is a testament to that, which on the scale of it, are nothing compared to what they can go on to achieve, but is incredibly reassuring because it means the market gets VRFB, its gets energy storage and there's going to come a time 'soon' enough, when it gets BMN's place within it all and in my view, BMN has a far bigger part to play.
I wish you all well with your investment in BMN.
1/2
Right now low vanadium pricing is allowing the likes of Invinity a free run at the vanadium market and maximising their offerings, from a pricing point of view. A situation that is perfect for VRFB take up and industry expansion.
Said expansion allows these companies to improve the costs of the other key elements of their products, making them even more cost competitive with lithium-ion.
However, as their products become more popular, their demand for what is a fairly finite amount of vanadium supply right now, will begin to help drive the price of vanadium higher. That being because the vast majority of vanadium is still produced as a co-product and is reliant on a strong steel market to exist.
Any drop off in steel demand and with it reductions in co-production, coupled with the expansion of VRFB demand, will place a burden on remaining vanadium supply, pushing prices up.
The likelihood is that steel demand increases as major economy saving infrastructure projects kick in during 2021/22. However, vanadium supply only has so much room to move because of its strong co-product positioning. So prices are likely to come under pressure far earlier from vanadium's traditional markets, which raises prices and places VRFB companies under pressure.
Then there's the niobium threat.
The more existing vanadium supply that VRFBs take up, the less chance niobium has of undermining the next rise in V prices. That is why supporting VRFB companies, in whatever chosen ownership structure BMN have decided upon, is whats most important here.
A flourishing VRFB market is a far bigger win for vanadium miners, than that presented by steel alone.
So right now, every new Invinity project win, is one more small step along the path to an inflection point. The point where by VRFB demand is large enough and regular enough, to ensure that V prices must begin to rise and stay risen.
It is at that point, that BMN's business model begins to thrive. It is at that point when the likes of IES, begin to need a guaranteed supply of vanadium, at a price that is certified and not affected by market volatility.
Yes advertised levelised costs now are much lower than lithium-ion on longer duration and upfront costs are on a par but measured against which vanadium price? $25 per mtV or $40-50?
Given enough expansion of their production, good VFRB companies that are winning good work, can accept higher V prices, which are already highly profitable to BMN. However, even with a strong tailwind, that is still going to take the likes of IES some time.
All of which plays right into BMN's hands because they really cannot lose in such an environment, no matter what percentage of the actual VRFB companies they hold. They simply need to get on with capacity expansion, sacrifice this period for the good of VRFBs long term and wait it out.
@Campagnolo BMN greased said obligatory palms when they signed up the S.A. Government's investment arm, the IDC.
It is they that own 45% of the pending Rongke Power battery coming into Eskom and 45% of the electrolyte plant, that will act as a technology localisation factor.
The very scheme that is listed in the tender document, that includes those "socio-economic imperatives," is exactly the same as that, which drove the IDC investment in the partnership with Bushveld Energy back in June 2016.
https://markets.ft.com/data/announce/full?dockey=1323-12850598-4VNTNO6J0COQFHOAMHNGKKASAE
Quote at the time ;
"Bushveld Energy and the IDC will commission a Feasibility Study to determine the following:
1. Assess VRFB viability and costs in the South African market, including studies of the market potential for VRFB Systems in South Africa and Africa, and techno-economic studies for the local manufacturing of vanadium electrolyte and VRFB system manufacturing in South Africa;
2. Identify potential local and foreign partnerships in support of the roll-out and local manufacturing of VRFBs"
"The IDC is South Africa's national development finance institution, wholly-owned by the South African government."
The IDC's Christo Fourie, Head of the New Industries Strategic Business Unit, said:
"The signing of the Agreement with Bushveld Energy marks an important milestone for the IDC's initiative towards the development of a sustainable Energy Storage Industry for South Africa. The IDC and Bushveld Energy share a common vision for the development of a new industry that will ultimately benefit all South Africans through increased local minerals beneficiation, the creation of jobs across the value chain, the increased availability of power and the overall stimulation of growth in the economy."
It was that techno study and partnership, that drove the IDC to chair the very committee (which included all S.A. stakeholders including Eskom and NERSA), that effectively delivered the Eskom BESS project.
See here.
https://www.crses.sun.ac.za/files/research/publications/technical-reports/USTDA_Public+Version+1.pdf
The palms couldn't be any more greased because BMN gave the S.A. government 45% from the off.
A BMN win means a S.A. government win.
Furthermore, not only have the right palms been greased but they have been directed and cajoled into a policy drive, that suits BMN, at a time when BMN didn't even own a mine.
In the 5th Oct 2016 RNS update, Fortune Mojapelo had this to say ;
"The IDC also has important stakeholder linkages with the South African government, regulators and utilities and other key players that are necessary to provide a catalytic stimulus for the energy storage industry."
BMN management might not talk it up very much but they know how S.A. works and what gets things done.
In summary.
The natural localisation is of little assistance to a BMN consortium but Technology Localisation, could well be the key that unlocks the Eskom door.
Something that BMN can not only demonstrate through their electrolyte plant construction and mine expansion plans but also through their direct partnership with the S.A. government, through the IDC. It doesn't get any more local than that.
Also worth noting that BMN are bang up to date with the BBBEE commitments at Vametco.
Can a lithium ion bid demonstrate a commitment to building future localised production? Yes. But is it truly within their interests, given all lithium would need to be imported? Harder to prove and difficult to compete with BMN and their value chain proposal.
The possibility of a localised lithium battery supply chain, has been looked at by S.A. government in the past but the IDC has only ever partnered with Bushveld Energy, which is a big tell in all of this.
Also, a company called "Megamillion Energy Company" were looking at this in early 2020 but I have found nothing further since.
https://cleantechnica.com/2020/02/09/new-south-african-lithium-ion-cell-mega-factory-plans-for-32-gwh-year-by-2028/
So possible but the strength of the argument cannot ever match BMN and their value chain plans and as far as I know, whilst S.A. reportedly has lithium, I don't believe it has any active mines. So it becomes about when and oppose to possible.
Importantly also not to forget that whilst FM has clearly stated that an Eskom contract win alone, wouldn't justify local assembly, clearly a preferred contractor status, would. If I am not mistaken, he also said that c. 10MW would be enough to get things started.
Bushveld 2019 FY Report, page 31 "2020 Outlook".
"Investigate the business case for South African-based VRFB assembly."
Slightly longer in the tooth BMN shareholders will know, that BMN have been talking that line up for over 4 years.
For me, the idea that it isn't connected to Eskom or a combination of that and the Enerox angle, is simply implausible.
Its waiting on a catalyst for the business case that BMN already clearly understand and have planned for.
When we combine the above with both the levelised cost angle, the sustainable requirements and any potential cycling and/or duration advantages, whichever VRFB company/consortium that makes the list (60MW and 20MW projects), is going to have a damn fine chance of winning.
Is it a guarntee? No. Is it absolutely necessary to deliver the BMN business case? No not at all because the company and its energy storage offerings, have developed greatly, since this Eskom BESS first came about in 2018.
But is it a really nice to have? Yes it really is and I am backing them to deliver.
Curve ball. I missed something, which this exercise has just delivered.
All key items listed above come under Section III "Evaluation and Qualification Criteria" (sorry no page numbers given by Eskom).
Section 1.2 is the "Economic Evaluation/Financial Evaluation"
This is key because it contains what I was going to discuss next, which is the "Life Cycle Costs" (section 1.2b).
One key element of that are the disposal costs.
If BMN, as part of their consortium, are able to implement/offer their rental product and it is acceptable to Eskom, then not only will we see something like that reported "30% reduction" in upfront capital costs but also the opportunity to remove the majority of the disposal costs, which lithium will struggle with, and replace them with a vanadium recycle valuation.
We can of course add other elements such as duration and cycles but the information on these isn't provided by Eskom, which may in itself create an opportunity, given this is a wind farm with potential for sporadic generation.
Now the curve ball.
Section 1.2e - "Sustainable Procurement," say this ;
"To support South Africa’s socio-economic transformation objectives, Eskom as a state-owned company serves as a catalyst to advance sustainable local economic development through leveraging Eskom’s procurement spend in a flexible manner that positively influences key measures such as contracting with historically disadvantaged groups, Skills Development, Enterprise Development, Job Creation and Industrialization."
"This procurement transaction will therefore be used as an opportunity to advance governments socio-economic imperatives."
I knew that because it is that section, which is the catalyst for the local content and use of the the SDL&I and BBBEE programs.
However, what it then goes on to describe are the two elements of said SDL&I programme.
"Two scenarios under sustainable procurement as follows:
• Natural Localisation - which refers to localisation of several elements during the construction phase (e.g. site establishment, construction, fencing, site security, etc.) and civil work
• Technology Localisation – which refers to direct activities which will lead to a substantial role by South African entities in the development of the technology in future, as well as through a supply of critical components and/or systems within the black box for the BESS"
The 20% local content is part of the natural localisation but it is the technology localisation, that is of interest to BMN shareholders and the words "direct activities which will lead to a substantial role by South African entities in the development of the technology in future."
When we then add in the black box items such as "localisation" and "capacity building," then we see a direct link to the ability for a bid, to generate a localised industry.
Jackpot.
In terms of the local content, that is unfortunately something of a red herring in this particular tender and may well stay as much, if the tender documents repeat themselves across the packages, which I don't see why not.
Its important to have a good read of the Eskom "Standard Procurement Document."
Section 2. "South Africa’s Socio-Economic transformation objectives" deals with the local content item and states the following ;
"Based on the high-level market sounding exercise Eskom conducted, Eskom has estimated that at least 40% of BESS components are locally manufactured and / or services that can be locally provided in South Africa"
These include ;
"1 Civil , Building and Steel work
2 Survey and Geo-technical studies
3 AC Equipment and installation
4 Shipping / Transportation Services
5 Construction/Project Management Services
6 Security Services
7 O&M Sub-contracting/Joint Venture"
The documentation is clear that much of this local content can be achieved by employing Eskom contractors, who have already demonstrated to Eskom that they can meet the programme and quantities (be it that the proof is in the pudding).
Also ;
"The Bidders can achieve compliance to this mandatory and compulsory local procurement spend requirements through the SDL&I and BBBEE programs that already exists as means of facilitating Social and Economic sustainability."
Finally ;
"Job creation proposal by bidders does not form part of the evaluation criterion. It is however, part of Eskom’s contribution towards the Government’s job-creation initiatives and therefore bidders are required to support the socio-economic imperative that seeks to empower local communities surrounding the areas where construction activities are conducted. These include the utilisation of local labourers from the area within which the project is taking place."
So any emphasis placed on a bid towards future job creation, has no bearing on the bid outcome.
Despite all of that, I still hold great hope for a BMN consortium bid because they may just win it on what truly matters and that is price.
Some thoughts on that next.
Morning all,
If I may, I would like to add to some thoughts to the ongoing debate around the Eskom BESS Tender, seeing as I managed to make the title
First and foremost, its important to appreciate that this first tender is not the only tender and the timing of those 2 follow on tenders, could well impact things here.
However, I do not expect the tender criteria to adjust but it might, depending on what Eskom learn from this first tender round.
What is also clear, is that Eskom are putting in places criteria, that do not fully mirror, the intentions laid out by the World Bank in previous presentations on this project.
There is a clear requirement for each bidder (consortium) to have 60MW of cumulative capacity with "each contract of not less than 20MW," completed in the last 7 years. That is very stringent for a project that the WB stated this about ;
"Because of the pioneering role of this battery storage project, its assessment should not be limited to the amount of
clean energy enabled and CO2 offset but the impact that the demonstration would have on maturing the technology,
lowering costs and enabling scale-up. Concessional funding is needed at this stage to support maturity of the
technology."
Bidders ave attempted to get this altered but Eskom have denied this request, driven by discussions with the Eskom "technical team."
Assuming bidders will not make it past first base without this, the final list of bidders might not actually be all that long and yet BMN have stated that they are still involved.
Packages 2 is of a size close to package 1 (combined 83MW). Package 3 is a tad smaller at a combined 34.5MW.
Will that reduce the requirements for experience? Possibly but unlikely.
I would argue that any company that has already delivered 60MW and rolling 20MW projects, is already well on its way to scaling up but then the entire energy storage industry, is still deemed immature and is even more relevant to 2018, when those comments were made.
What all of that logically points towards, is a BMN consortium with one from a very limited list of VRFB players.
Rongke is of course favourite, given they are installing a battery at Eskom, to replace the one delivered by their sister company UET. Everything happens for a reason after all. I'll leave others to pull the other potential partners together.
To follow, some thoughts on the tender particulars.
@Observer842 Thank you for engaging on this.
You are absolutely correct, I made a clear error on the ownership levels for stage 1.
So actual retained ownership for BCN is 48.2% for at least the first 19 years of mine life, which is excellent.
Question still remains how KDNC cover their $15m bill. I suspect it will be deducted from profits with additional fees for BCN upfront cost outlay.
BCN looks really good after today's update.
Morning all.
Firstly really great news for BCN and their shareholders.
I have been running some numbers on my feed but have not taken into account the KDNC ownership factor.
https://twitter.com/BigBiteNow/status/1327197554749169664?s=20
The following statement is given as part of today's RNS.
It would imply that KDNC are 12% owners of stage 1, which means that on paper they are responsible for 12% of the build costs. Does anyone have a link to how the JV is structured? If true it has a significant affect on the final finance deal.
I assume the RK Finance deal is at project level as i can see no reference to Sonora Lithium Ltd (See Below). However, it is BCN paying the interest on the loan. Any direction anyone can give would be greatly appreciated.
https://www.bnamericas.com/en/news/bacanora-lithium-secures-us150mn-funding-for-sonora
"Sonora Lithium Ltd ("SLL") is the operational holding company for the Sonora Lithium Project and owns 100% of the La Ventana concession. The La Ventana concession accounts for 88% of the mined ore feed in the Sonora Feasibility Study which covers the initial 19 years of the project mine life. On completion of this option exercise, SLL will be owned 50% by Bacanora and 50% by Ganfeng Lithium Co., Ltd. SLL also owns 70% of the El Sauz and Fleur concessions."
Error. They are sitting at just 0.29% of that market, which only goes to support my point further.
I also look forward to witnessing the indicated uplift to c. 17,000 meters by YE, which itself is another clear tell for me, given it increases total meters by 23% in just c. 4.5 months.
@ontheupupup Thank you for coming back to me. I appreciate where you are coming from and you have certainly given me food for thought and I will look to spend some time on this angle now.
I will say this though, these churn rates have been in play right throughout the company reset and yet they have managed to increase revenues from £80m in FY18 to £112m in FY19.
As far as I can see, FY20 was never about driving substantial additional growth but building up business systems, strengthening the sales arm and driving through the remainder of the low margin contracts.
Now this is complete, I can see a solid FY20 outcome (Covid aside) and much cleaner and progressive 2021 backed by a sales team expansion, that has never been fully unleashed until essentially now.
As the interims state, "the first two months of Q3 bookings have been the strongest to date," which given in H2 2018 they managed to average £8.6m, says there is real strength there.
I remain convinced by the foundations YU now finds itself stood upon and for me the green shoots are abundantly clear, despite this churn question and I see no evidence that YU cannot counter any losses from this churn.
After all they have a £35BN sized market to go at and profitability (my first goal here), would come at a tiny fraction of that, given they are sitting at just c. 2.9% of that market to date.
However, the icing on the cake here for me is acquisitions and that could well push things on a lot more quickly.
Lets see what January brings, in the meantime, as things stand, i will add on any weakness.
@ontheupupup. Thank you for engaging on this, its appreciated.
You make a good point about customer churn rates but I do feel this is countered somewhat by YU's whole ethos of customer service, the 4.5 trust pilot score and such things as their 3 ring pick up commitment. YU's whole approach is to be better at customer service than their competition.
Also, its surely difficult to define customer retention, when their goal is to shift a high proportion of low margin contracts off the books. A move that would likely drive higher customer churn and present a warped picture. That does not excuse not providing guidance.
Whilst none of the above is easily measurable, it is for me nevertheless, factors that alleviate many of concerns on this matter.
In terms of making big assumptions, based on previous years, my assumptions are calculated ones and employed against a year, when there was a deliberate managed deceleration in bookings, as the business expanded its sales team and focused on fewer higher margin bookings, whilst eliminating future low margin contracts.
Jump forward a year and now the effects from that are behind them and a bigger sales team is making its mark. So for me the figs. I have used are as I said, conservative but you are entitled to differ in your opinion.
It should also be noted that I was concentrating on your point that revenues ;
"Will reduce further in 2021 (contracted revenue for 2021 stands at £71M - unlikely this gets back to 2019 levels in 2021. (given Bristol Energy represents around £16M of annualised revenue for 2021 my earlier analysis showing that revenue was reducing fast proved to correct - contracted revenue would have been around £56M for 2021)."
For a start, Bristol Energy revenues are expected to be £10m over a 16 month period to Dec 2021, so £7.5m in 2021, not £16M as you have stated. So contracted revenue would have been £65m (actual fig. is . £71.7m).
Secondly, the business is the sum of all its parts and the acquisition is part of that, so contracted revenue is what it says it is and will clearly be added to by further M&A. A big positive because it shows intent and financial stability to do so. YU is the hunter and not the hunted, for now.
Your point about Covid is in line with my own thoughts but my investment is designed to reap the rewards prior to the event, as opposed to reacting to it. There may be risks to overcome but the important thing is YU is stable and will add to its portfolio of meters and that means an even stronger base, post Covid.
@Ammu123
I couldn't cover everything without it becoming too much detail but I did indicate towards this when i said "there are some costs to be re-added to the system," be it a tad wooly.
As the below link details, on 24th Sept the UK Gov now allows businesses to make "smaller payments up to the end of March 2022, interest free."
What this essentially means is that payments can be split over 11 equal payments, starting April 2021.
So YU have the option to extend payments over a c. 18 month period, giving them time to further expand business revenues throughout 2021/22 and thus lower any impact.
https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19
Apologies 2 clear confusing errors in my posts.
1. "If 2021 can beat 2021, which Covid influences aside, I believe it comfortably will, then the knowledge that low margin legacy contracts fall from c. £35m in FY20 to c. £5m in FY21."
Should read "can beat 2019"
2. We are talking H1 c. 9,800 meters at 35% revenue with "a sharp shock during the lockdown period, via a c35% instant drop in customer demand" vs start of FY21 at c. 17,000 meters and stronger margin contracts.
Should read "We are talking H1 c. 9,800 meters, which included "a sharp shock. . .
(2 of 2)
As for the overhead, that has indeed remained "broadly aligned to FY 2019 despite the reduction in revenues" but as YU says, it was achieved against just £46m in revenues, so £92m at FY, compared to 2019, which achieved £112m.
So £20m less in revenues plus further investment in "sales and marketing to drive growth" but overhead remained steady. That's clear progress in my view and will be further helped by revenues increasing and the removal of those legacy contracts, as most costs are now fixed.
The same goes for gross margins, which will naturally gain a lift from the removal of legacy contracts, the addition of "mid-single digit percentage" margins from the £7.5m of revenues to be booked from Bristol Energy in FY21 (£10m across the 16 months ended 31 December 2021) and ever increasing revenues.
Its simply not fair to judge the 2.2% margin on H1 2020 because it was an extraordinary event with revenues well below those that can be expected in 2021.
We are talking H1 c. 9,800 meters at 35% revenue with "a sharp shock during the lockdown period, via a c35% instant drop in customer demand" vs start of FY21 at c. 17,000 meters and stronger margin contracts.
However, I do expect that there are some costs to be re-added to the system, which were deferred but the expanding revenues, already stated as being well within grasp, should more than cover that.
It is absolutely correct that the BOD are forecasting break even at EBITDA for FY2021 but that is without any further acquisitions and it is clearly designed to be cautious because new restrictions are in play in the UK and so forecasts must naturally remain subdued but it Covid restrictions remain manageable, which I believe they have every chance of, given how another full lockdown would affect many businesses, then I think FY2021 will be far more successful than is currently indicated.
In addition, it should be forgotten that UK Gov is supporting a great many UK businesses through interest loans with lengthy no payment periods. These measures have recently been extended and I expect that to continue, so long as small businesses remain under strain. This supports a healthy level of payments being maintained across YU's customer base.
Finally, given YU's approach to customer service, demonstrated though the introduction of their Assist and Agile plan, I actually believe YU can prosper through these uncertain times, as more customers shop around and look to manage their cost base better. It wouldn't take a great deal of drive through to FY2021, for YU to completely remove the adverse affects of Covid on the business.
However, even without that added bonus, it looks to me that YU is now on a much stronger footing and the growth promises reflected in the valuation throughout late 2017/18, can now start to be realised, whatever this Winter throws at us all.
(1 of 2)
Morning all,
@ontheupupup For the purpose of healthy debate, I would if I may challenge a number of your figs and conclusions.
1. Firstly, 2019 revenues were £112m, not £120m as you have stated.
2. Contracted revenues for FY21, as of 31st August 2020, stand at £71.7m.
If we look back at the same stage in 2019, we see that contracted revenues for FY20, stood at £65m on 31st Aug 2019. By 28th Jan 2020, these had increased to £79.5m (22% increase). However, this was against average H2 2019 monthly bookings of just £5.1m, where as H1 2020 monthly bookings are already at £6.2m and the CEO has reported (30th Sept RNS) that "the Board anticipates H2 2020 average monthly bookings to be significantly above the £6.2m achieved in H1 2020."
Therefore, this should translate into a greater uplift in FY21. However, even if they only match the same 22% increase, we are talking FY21 contracted revenue of c. £87.5m by end of Jan 2021.
Note - This is of course prior to any affects of Covid restrictions, which won't be known about until 2021 starts to unfold.
To place that all in context of what can/should be achieved in 2021, we need only look at what was booked by end of Jan 2019.
There we see that as of 30th Jan 2019, YU had "in excess of £85 million of revenue contracted for FY 2019" and went on to deliver £112m in FY revenues that year, whilst averaging £4.2m in monthly bookings throughout 2019. So c. 32% further uplift over the course of the year.
The same result in 2021, would deliver FY revenues of £115.5m and would beat the 2019 result.
However, that's without adhering to the message that H2 2020 monthly bookings are significantly above H1 2020, which themselves are 50% higher than those achieved in 2019.
The message in yesterday's update was clear, "Strong monthly bookings in July and August with significant acceleration anticipated during H2 2020."
If 2021 can beat 2021, which Covid influences aside, I believe it comfortably will, then the knowledge that low margin legacy contracts fall from c. £35m in FY20 to c. £5m in FY21.
Even with £35m of low margin contracts on the books this year, H1 20 would have delivered an almost break even EBITDA, if it weren't for the £1.6m in lost EBITDA due to Covid and it would have been achieved on c. £54m (H1 £45.9m + "£8.0m impact on H1 2020 revenue has occurred due to the reduction in customer demand for energy due to the COVID-19 lockdown" See financial review 30th Sept RNS).
So in simplistic terms c. £110m in 2020, gets us around about break even at EBITDA level, against the above conservative £115m for FY2021, which should be (Covid aside) beaten, will have next to no legacy contracts and will highly likely include at least one acquisition.