Overtrading.26 Nov 2022 08:39
EAAS propositions are irresistible.
Every institution and corporate body has to sign up to Net Zero. How can they do that without capital expenditure, hiring specialist staff and distracting management from their core business?
The easiest and best option is to outsource EVERYTHING to EAAS, pay nothing in CAPEX and reduce OPEX. Bringing in experts to reduce energy wastage and costs is great, but the real bonus is ticking that ESG box cheaply and easily. That means happy shareholders, public and government departments. Nobody wants to be seen as negligent in this regard, so it’s a big win for zero cost.
The obvious danger has been overtrading, which is what they have done. You could see it as a failure to manage the expansion of the business in a responsible way, through lack of management information and basic cash flow forecasting. That happened with Deepverge and resulted in a drastically discounted placing and management restructuring. My opinion of EAAS is that their management information is good enough that they knew what they were doing, in terms of taking on new business, but always intended to issue these bonds at a time of their choosing, thus presenting them to shareholders as a fait accomplis.
The bond issue is a massive bod trousering event, obviously, which will always make we PIs jealous and resentful, but on balance, I prefer ultra rapid expansion to slow expansion, and bond issuance to a heavily discounted share placing. With a five year expiration date, I can’t imagine any significant share dilution in the next couple of years.
EAAS now has the cash to go full steam ahead, then repay the bond holders from future cash flow. That cash flow will really ramp up with every new installation.
On balance, I’m happy with that borrowing.
GLA
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