Eneraqua Technologies plc AIM:ETP, the London-based, AIM-listed construction and materials company published its interim results to 31st July 2022 today (11th October).
The company debuted on AIM in November 2021 at 277p per share and raised GBP20m at IPO – GBP12m of which went to the company and GBP8m to existing shareholders.The company also received London Stock Exchange’s Green Economy Mark. This classification, first introduced in 2019, was created to highlight companies and investment funds listed on all segments of London Stock Exchange’s Main Market and AIM that are driving the global green economy.
To qualify for the Green Economy Mark, companies and funds must generate 50% or more of their total annual revenues from products and services that contribute to the global green economy.
The company opened trading today at a price of 238.9p and had risen to 262p by mid-morning trading. Eneraqua has offered a year-to-date return of -9.13% and has a market capitalisation of GBP76.4m
Energy efficiency
The company provides energy and water-efficiency solutions, providing turnkey solutions for decarbonisation through heating and hot water systems for multiple occupancy social housing and commercial projects.
Eneraqua also delivers water efficiency upgrades for utilities and commercial clients such as hotels and care homes. These activities are underpinned Eneraqua’s wholly-owned intellectual property, the Control Flow HL2024 family of products which reduce water wastage and improve the performance of heating and hot water systems.
The energy crisis brought on by the war in Ukraine has brought the way we use power in the UK into sharp focus. Although the focus from the government has been on the supply side – trying to reduce the reliance of the UK on energy imports by increasing the amount of energy produced domestically through increasing the use of fracking and opening up new oil and gas projects in the North Sea – the other (predominantly discounted) side of the equation is using less energy by making heating and insulation in homes and businesses more efficient, thereby reducing the demand for energy. Eneraqua predominantly operates in this segment of the market.
Acquisition growth
The company was founded in 2012 and offers its products across the UK. Traditionally it has grown organically with its flagship product, Control Flow HL2024 helping businesses and homes manage their water usage. Between 2019 and 2021, prior to IPO, delivered revenue growth at a compound annual growth rate of 38%, but believed – given the direction of the prevailing wind towards environmentally-friendly initiatives in the construction and energy sectors – that listing the company publicly would allow it to accelerate its long-term growth through both organic and inorganic opportunities.
And since IPO, the company hasn’t done too badly. It reported a 92% uplift in revenue to GBP24.4m, compared to GBP12.6m for 1H21, which reflected new contract wins and the completion and paying-up of existing projects.
Mitesh Dhanak, the company’s chief executive said in a statement this morning: “We’re pleased to have increased revenue visibility through our order book, with the current financial year remaining fully covered. We have increased the revenue target for FYJan24 to GBP80.1m, materially ahead of prior management expectations, and have 72% of this already covered.”
He added: “Our performance underpins the company’s growth plans in the domestic and commercial energy markets as well as the water sector […] Looking forward, we expect to launch our water efficiency product direct to consumers later this year. This has been proven to reduce domestic water and energy consumption and utility bills.”
The uptick in revenue helped push up gross profits, which increased 64% to GBP9.9m – up from GBP6.1m the year before. Adjusted EBITDA was GBP3.98m, up from GBP3.23m the year before and adjusted profit before tax was GBP3.1m.
The company retained GBP6.5m in the bank and had reasonably low net debt of GBP200,000, although debt jumped quite considerably from GBP30,000 in 1H21. Dhanak explained that this was a result of investments made to manage an increase in project delivery. Adjusted diluted EPS was 6.48p.
Indian irrigation
The company has been active both in the UK and overseas. Back in May the company was selected by the Department of Horticulture for the State Government of Uttarakhand in India to install its zero-carbon irrigation product in a GBP900,000 contact. The project will see Eneraqua supply systems to 340 horticultural farms across the state, reducing carbon emissions and improving water efficiency. It was the first initiative of this kind in India and by efficiently managing water usage, it said it would help farmers to conserve water, improve crop yield and prevent soil erosion. Solar photovoltaic technology would be used to power the irrigation systems. Eneraqua said the project represented an “important step” towards the decarbonisation of the agriculture sector and would provide a template for other states in India and beyond.
A month later Eneraqua announced that had been awarded two contracts from local authorities in England to deliver net water neutrality pilot programmes in their areas. The company said that the contracts would see it install Control Flow HL2024 systems in existing homes to improve water efficiency. Eneraqua said that the saved water would be used by new homes built in the region, which is set to address local water stress issues. This was additional to contracts secured this year from social landlords and private clients to provide heat pump technology.
B2C offering
Following the success of these two local authority net water neutrality pilot programmes the company decided that it would in a direct B2C offering. The water neutrality pilots were to demonstrate how Control Flow HL2024 installed in existing homes can save water to offset the demand of new homes in the area. This would allow Control Flow HL2024 to be used in unlocking some of the estimated 120,000 new build homes across the UK currently stuck in planning due to water and nitrate concerns.
As a result of the success of the pilots, from both a saving and customer satisfaction perspective, the company said it will shortly commence the launch of the product direct to consumers, with pre-launch costs of approximately GBP500,000 in 2H23 to cover marketing and operational delivery teams.
Eneraqua seem to be in the right place at the right time. The addressable market in the UK and Europe is expanding due to regulatory growth drivers. The company’s strategy for inorganic growth and intent to develop the energy business in Europe through acquisitions seems a good use of capital.
The company acquired Durham-based, Mathewson Holdings an established provider of underfloor heating solutions for the health and commercial sectors, for an initial consideration of GBP1.4m with further consideration of GBP350.000 payable over two years at the start of August.
This followed the acquisition Welltherm Drilling, a specialist borehole drilling business in September 2021 providing Eneraqua with increased drilling expertise and availability of drilling equipment, which the company believe gives Eneraqua a competitive advantage over competitors, as prior to the deal Eneraqua had been battling with growing lead times from outsourcing borehole drilling in the UK.
However, the key acquisition was of HGP, a Dutch supplier of water control products in June 2021 as with the acquisition Eneraqua gained full ownership of the Control Flow HL2024 IP system.
The company is keen to explore opportunities for its systems in the EU as many countries in the EU have government schemes incentivising heat pump installation across the built environment and these are expected to increase with the EU Plan 2030 that aims to cut carbon emissions by 55% by 2030.
Although Eneraqua is a relatively new addition to AIM, it has punchy ambitions and can surf the wave of energy sustainability when other firms in the Industrials sector face a bleak few years.
