Contracts growing, +ve operating cash flows   

LPE’s recent operational update (8 February 2018) indicate that in calendar year 2017, billing contracts under management (UM) increased by 80.7GWh at an average monthly volume increase of 6.7GWh (+6.5% MoM). See graph below.

 

 

 

 

 

 

 

 

 

 

 

 

LPE posted its first +ve (albeit modest at A$23k) operating cash flow in the last reported quarter (December 2017). However, backing out unbudgeted business expenses and one-off metering adjustments, we calculate that operational cash flows for the quarter would have been a more substantial A$200k. Importantly, management indicates that operating cash flows are expected to improve in coming quarters.

Forecast billing contracts under management

We assume billing contracts UM increasing at an average of 6.75GWh per month out to June 2019, in line with historical growth rates. Thereafter, we forecast that internally generated cash flows will be sufficiently high to support accelerated growth at 8.5GWh per month.

Predicated on our monthly growth profile, we forecast billing contracts UM increasing from 119GWh in June 2017, to 197GWh in June 2018, to 278GWh in June 2019 and 380GWh in June 2020. Our forecast of 380GWh by June 2020 is below LPE’s original target of 450GWh. However, we note that in the February 2018 operational update, management indicated that progress had been made in securing (new) funding facilities. We suggest that posting a maiden positive operational profit in the December 2017 quarter would have significantly assisted the group in these endeavours. Successfully securing debt facilities would allow us to upwardly revise our forecast billing contract UM profile - particularly in 2018/2019. Note: at an estimated installation cost of A$25k per meter system, and assuming average strata consumption of 0.5GWh, we calculate that each 10GWh in additional sales requires capex of A$0.5m.