ERM Power - US update and focus on energy solutions
ERM Power’s strategy is focused on sustaining growth in its cash-generative core Australian activities while developing two new growth areas: energy solutions and US supply. While we have reduced our short-term forecasts for the US activities to reflect lower margins and volumes, as guided by the company, we have increased our forecasts for energy solutions on the back of our new assessment following a recent investor briefing. Our analysis suggests this business could drive up to 40% growth in group EBITDA in the medium term (16% mid-case). Overall, our FY18-21e EBITDA forecasts change by -6%, -14%, -9% and +7% respectively. Our base case valuation, which includes core Australian business only, is unchanged at A$2.6/share.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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