When one of my core holdings, Energy One Limited (ASX: EOL), announced it would raise capital to fund its acquisition of eZ-nergy recently, I was reasonably content. You see, I had assumed in my analysis of the Energy One Limited investment opportunity, that the company would raise a little capital, and indeed, it had foreshadowed that it might.
However, like some other shareholders, I was a little downhearted that there was no opportunity for retail shareholders like myself to buy shares at the capital raising price of $2.20 per share.
As a result, I reached out to the company to ask about the prospects for a share purchase plan, or similar. As it happens, I was able to have a conversation with Chairman Andrew Bonwick about why the raising took place without a retail offering. As I expected, he explained that the board was focussed on simply ensuring they had funding in place, given that the pandemic had slightly changed their options when it comes to funding.
Given their view that the acquisition made both strategic and financial sense, their priority was (rightly) ensuring that the company would not struggle to pay the initial consideration. I explained that I thought a share purchase plan would go a long way to showing that the company values its smaller shareholders, and the conversation moved on to other topics. I didn’t really have much hope that we would get a share purchase plan in the near term.
So it is with some degree of delight that I can today report that Energy One Limited has today announced “a non-underwritten Share Purchase Plan to raise (in total) up to A$750,000.” While this is not overly dilutive, and will not be perfectly fair (which is always the case with SPPs) it is a relatively low cost way of including retail shareholders and allowing them to build their positions in what is (lets face it) a very tightly held stock.
On top of that, the share price offered ($2.20 per share) is a handy 18% discount to the prevailing share price of Energy One Limited (ASX:EOL), which is $2.70.
Zooming out, I also gained confidence in the company from my chat with Andrew. First, the company’s CEO Shaun Ankers was seamlessly proactive in facilitating the discussion. Second, Andrew has over 20 years of relevant experience in the energy utility industry, and has an open minded but sensible view of how to grow the business. Third, (and as the company announced), Energy One should be fairly resilient against the backdrop of the pandemic.
At the moment, the company is focussed on executing the projects it currently needs to implement. While there may be some disruption arising from the current situation, the customers tend to provide essential services, and even if they fell into administration, the administrator would still need Energy One software to run the business. Finally, Energy One is fundamentally in the business of automating processes which allows them to run optimally with less human intervention. This is generally a cost saver.
As we approach the 6 year anniversary of my first purchase of Pro Medicus (ASX: PME), I’m glad to have found another tiny software microcap that has the fairly rare combination of being majority owned by board members, but also fairly mindful of smaller shareholders. It should go without saying, but this is not advice, I do own shares in Energy One, and I currently intend to apply for more under the SPP.
The SPP may be scaled back if applications exceed $750,000. By my calculations, this is reasonably likely to occur, but may not, depending on how well the SPP is supported by shareholders.