E•BOOM CAPITAL: Eaga Hit by UK Government Cutbacks in Energy Efficiency Incentives

Eaga’s energy saving services include solar panels, heating and cooling equipment and insulation, plus energy management systems.

If you are a business or municipality wanting to cut operating costs by improving the energy efficiency of your operations, who you gonna call? There are a gazillion products and technologies that will do this or that, but it would take a lifetime to assess all the possibilities.

If you are in the United Kingdom, you are likely to call Eaga plc (LON: EAGA.L), the energy efficiency solutions company whose 11.23 percent share price increase led the EnergyBoom Clean 100 Index (E•B Clean 100) last week. 

In October, we pointed out two U.S. companies you could call: Ameresco, Inc. (NYSE: AMRC) or Lime Energy Co. (NASDAQ: LIME).

The benefits of calling companies such as Ameresco or Lime is that they are independent from technology and equipment suppliers and, therefore, able to objectively select and provide the products and technologies best suited for a customer’s needs. 

Eaga has a similar business plan, although a big chunk of its revenues come from providing products or services subsidized by government, sometimes operating on government contracts. Example: Eaga will install solar panels at low or zero cost, because the government is subsidizing most or all of it. For a UK homeowner, that would be a gift of 11,000 pounds ($17,500 at today’s exchange rate).

The company was listed on the London Stock Exchange’s junior AIM (Alternative Investment Market) June 8, 2007 at 181 pence ($2.88) and raised 220 million pounds ($350 million) in the initial offering. The shares traded up to 227 pence ($3.61) in the early weeks, then the recession took the stock down to 98 pence ($1.56) by June 20, 2008. 

For the next two years, the stock traded up to 150 pence ($2.39) several times, but in March of 2010 it began a decline largely caused by the uncertainty over the UK government’s commitment to subsidies for renewable energy and for energy efficiency. The stock traded down to 51.25 ($0.81) in early December 2010 after the government announced in October 2010 that it was eliminating a program called Warm Front, that gave grants for household energy-saving improvements.

In the face of these government cutbacks, Eaga has implemented a 20 million pound ($32 million) restructuring program to reduce costs, including laying off 220 employees and planning to lay off another 700 employees by March.

Six-month Loss and Revenue Decline

In its six month financial results (ended November 30, 2010) reported January 27, 2011, Eaga had a loss 3.8 million pounds ($6 million) on revenues of 308 million pounds ($490 million), compared with profit of $11.2 million pounds ($17.8 million) on revenues of $391.45 million pounds ($622 million) for the same period of 2009. At November 30, 2010, the company had cash and equivalents of 20.24 million pounds ($32.2 million), compared with 35 million pounds ($55.65 million) a year earlier. 

Apparently, the poor numbers reported by Eaga were already built into the share price and investors are pleased with the restructuring, because last week’s 11.23 percent increase comes on the heels of a three-month increase of more than 21 percent. 

The company’s chairman said last week that he’s optimistic that new incentives and subsidies announced for the UK government’s recent energy policy will provide “a wide range of substantial opportunity” for the company. 

Photo credit: Eaga plc

DISCLOSURE: The writer has no positions in, or professional connections with, these companies.