ERM Power - Upcoming US business disposal is positive news
In the context of the FY18 results (23 August), ERM Power announced its intention to sell US supply activities, which we view as very positive, as we expect this business to continue to generate significant negative profit and cash flow. On an underlying basis, FY18 EBITDA was 12% better than expected, while net income was in line with our forecast. On the negative side, the company moved from a net cash position to a net debt position as a result of cash outflows related to derivatives variation margins. Overall, we see the announcement of the US business sale as a major positive catalyst and expect the stock to reverse the negative share price performance since the US outlook downgrade at the end of May.ERM Power is engaged in the electricity sales to businesses in Australia and the United States of America; the generation of electricity; and the energy solutions. Co.'s segments include Business Energy Australia, which provides electricity sales to business customers in Australia; Business Energy US, which provides electricity sales to business and residential customers in the U.S.; Generation Assets, which provides gas-fired power generation assets and delivery of power generation solutions; and Other, which provides gas, metering, data analytics and lighting solutions.
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