This morning, Energy One (ASX: EOL) released its results for H1 FY 2026, reporting revenue growth of 21% to $34.8 million, and net profit after tax growth of 61% to $4m. Over 90% of the revenue is recurring in nature, which is a higher proportion than in years gone by, when a higher proportion of project or transaction-based revenue occasionally saw half-on-half revenue reductions, as you can see below.
The company also noted $600k of one-off costs negatively impacting profit, and called out a benefit of around $200k at the profit before tax level, relating to foreign exchange movements. Therefore, in this half, the statutory profit is probably a good proxy for underlying profitability, depending on how “one-off” you consider expenses like recruitment and acquisition due diligence, which occur repeatedly, but not annually.
I’m happy to use the statutory profit this half, and that translated into earnings per share of 12.73 cents, the best half-year result in the company’s history. Worth noting, however, that diluted earnings per share were significantly lower at 12 cents per share, and I believe this lower figure would be a more appropriate basis for valuation.
As you can see in the chart below, no dividend was declared for H1 FY 2026, but the company has historically paid only full-year dividends, so we won’t find out about the dividend relating to FY 2026 for another six months or so. I would be content to see the dividend remain flat, in order to allow the company to strengthen its balance sheet.
As you can see below, the free cash flow result was also strong, at about $3.26 million, which is over 80% of net profit after tax. This allowed the company to reduce net debt to $5.8 million. As usual, the company expects stronger cashflow in the second half.
The board of Energy One has always been a bit more comfortable with leverage than I am, and to be fair, they have a track record of using debt wisely. The plan is to continue paying down debt, but the company did flag it is on the look out for any acquisition opportunities that could arise, and considers itself well-positioned to leverage up and/or raise capital for the right acquisition.
My view is that when you have a great company with honest and competent management, you really want to minimise dilution. While I consider dividends a great way to show respect and gratitude to shareholders, when the company is also considering issuing shares to raise capital, I generally prefer to see a lower dividend and less dilution.
Of course, the situation is reflexive. You see, maintaining or mildly increasing a dividend can also support a share price. That in turn can help minimise dilution by potentially fetching a higher price for shares in a capital raising. To my mind, the best path is probably a very modest increase in the dividend, while reducing the percentage of profit paid out.
In any event, one potential silver lining arising out of the software stock sell-off is that Energy One might have an improving opportunity set. When Maven Funds Management CIO Matt Joass asked the leadership team about whether the private market opportunity set is improving, the outgoing CEO Shaun Ankers noted that “if a rising tide lifts all boats, then a declining tide takes them all down again.”
Importantly, Shaun Ankers will remain involved in assessing any acquisitions as a Non-Executive Director of the board. This gives me confidence that the company will be cautious about any future acquisitions.
One potential negative was the reduction in implementation revenue from the European business segment, as shown below. The reason this is negative is that it could imply slower growth. That said, implementation spend doesn’t track perfectly with growth, and in any event, project implementation revenue from Europe is expected to increase in the next half.
On a brighter note, the investor presentation contained a very valuable appendix, demonstrating that Energy One remains a leader when it comes to transparency. For example, it shared the reasons why it loses customers in this graphic.
It is notable that some customers did move to internal solutions, but Shaun Ankers explained that this did happen prior to the advent of LLMs, and while it would be possible for someone to “vibe-code” a replacement for some parts of what Energy One does, “when the risk committee find out about they usually frown on it.”
On the subject of AI, incoming CEO Ben Trainier noted that “in some other cases, when the entrants want to build part of the system, they still contact us to provide the rest.” Based on this, my guess is that, at the margins, the advent of AI coding will likely lead to a slightly lower net retention rate than would otherwise be the case. On the other hand, I could also see AI increasing the complexity of energy markets such that, ultimately, businesses like Energy One will become more important, not less important, over time.
Energy One says it charges based on the size and complexity of the solution, not per seat.
In any event, the highly regulated nature of the wholesale energy industry will definitely provide some kind of competitive moat in favour of established operators. This potentially gives Energy One a head start in becoming the platform on which AI agents can operate, though the company has yet to share any plans in this regard.
Mercifully, Energy One has refrained from giving specific guidance. However, the company says the second half will be as good or better than the first half. In the first half the company generated about 12 cents in diluted earnings per share, if we assume the second half earnings increase modestly to 13c then that would be 25 cents for the full year. At a share price of $14, that means Energy One trades on a FY 2026 P/E ratio of about 56, on what I think are fairly conservative assumptions.
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In the long term, I definitely think Energy One can grow into that valuation, because as it gains scale, it is also increasing its profit margin, as you can see below.
That means that profit growth can exceed revenue growth, and revenue growth is pretty strong at around 15% to 20%!
Even if we assume profit only grows at 15% per year, that would lead to profit doubling in five years. All else being equal, that would put the P/E ratio below 25x, which would definitely be too low for a company with 90% recurring revenue growing earnings by double-digit percentages each year. In my view, anyway.
In the short term, though, I imagine general negativity towards software companies arising from the threat of increased competition from AI-powered challengers will continue to weigh on the share price. Therefore, as a shareholder, I am certainly bracing for a potentially bumpy ride until the market is reassured that Energy One is not particularly vulnerable to AI-powered disruption. Who knows when that might be?
In any event, with my long-term investing hat on, I was very pleased with the H1 FY 2026 results, and my long-term Energy One investment thesis remains on track.
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Disclosure: The author owns shares in EOL and will not trade EOL shares for 2 days following this article. This article is not intended to form the sole basis of an investment decision. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. A Rich Life does not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.