Small Caps | 10:29 AM
The growing complexity of global energy market grids necessities better, smarter and more data complex management tools, a tailwind for Energy One.
- Structural tailwinds from renewables, volatility and regulatory change
- Scaling globally as energy systems become more complex
- Analysts see long term growth embedded in Energy One
By Danielle Ecuyer
A burgeoning critical provider of global energy market systems
One can be forgiven for not appreciating the underlying complexity and changing nature of global energy and electricity systems.
What many of us have consistently taken for granted over the last five decades is reliable 24/7 power supply at the flick of a switch, but that's currently undergoing a major restructuring, which brings both challenges and opportunities for participants in global electricity markets.
Enter Energy One ((EOL)), a company with a $550m market capitalisation, listed on the ASX since 2007, which has more recently caught the attention of several stockbrokers resulting in multiple positive initiations of coverage.
Historically, the company has evolved through strategic acquisitions since listing, marking its transition from an independent energy retailer to a provider of Energy Trading and Risk Management (ETRM) software solutions, following the purchase of UtiliSolutions.
Since then, Energy One has generated a compound average EPS growth rate of 20.6% over the past five years, Morningstar points out, alongside above market average compound share price appreciation of more than 26% over the period.
The share price is up around 160% year to date.
The nuts and bolts of Energy One
Energy One, as described by Bell Potter, “is a global provider of software products, outsourced operations and advisory services for wholesale energy, environmental, and carbon trading markets”.
With more than 450 customer installations across over 30 countries and 12 product offerings, Energy One has established a global footprint spanning Europe, the UK and the Asia-Pacific region. The company reports its systems account for around 50% of electricity traded in Australia, within the National Electricity Market (NEM), one of the largest interconnected electricity networks globally.
Energy One offers a full stack solution for NEM participants covering live market data and analytics, bidding and dispatch, risk management, and back-office settlement and operations. A “follow-the-sun” service model enables 24/7 customer support.
According to industry discussions, the offering is positioned as a premium, out of the box “one stop shop”, Ord Minnett explains. The breadth of services allows customers to consolidate providers, reducing operational complexity, which analysts view as a key strategic advantage.
Ord Minnett estimates cost savings for end users of around 92% over a typical project life, compared with building in house systems and operational capability.
By contrast, Europe based competitor Volue offers a more specialised software portfolio with a heavier focus on power trading and algorithmic trading. While competitive in niche functions, analysts suggest Energy One’s broader integrated platform is better suited to increasingly volatile electricity markets.
Analysts describe ETRM systems as “mission critical” infrastructure for electricity market participants.
Electricity prices in the NEM, for example, can be highly volatile, including negative prices during peak solar generation periods.
Prices can swing from minus -$1,000/MWh to positive $16,000/MWh, volatility that without sophisticated trading and risk systems can undermine market stability and contract management.
What are the growth levers for Energy One?
Growth for Energy One is driven by both geographic expansion, particularly into Europe, and the structural transformation of electricity markets as generation shifts away from traditional non-intermittent sources such as coal fired power plants.
Canaccord Genuity highlights European Union regulatory changes that are expected to stimulate further procurement by energy market participants.
EU pricing frameworks are transitioning to 15-minute settlement intervals, with supply and demand matched 96 times per day, up from 24. This increases data intensity and operational complexity, particularly as renewable penetration introduces greater weather-driven variability.
The expansion of solar and wind generation is expected to lift demand for modern, data rich ETRMs, algorithmic trading tools and physical trading management systems.
Canaccord points to Energy One’s eZ-Ops and enFlow platforms as well-positioned to capture this demand, while enTrader provides an enterprise grade ETRM solution for UK and EU markets.
Australia underwent a similar shift in October 2021, when settlement intervals were reduced to five minutes from 30 minutes. This change resulted in a sixfold increase in pricing data granularity and drove both customer upgrades and new client wins.
Ord Minnett estimates Energy One’s total addressable market at $108m in Australia, $1.1bn in Europe and $1.7bn in the US. This broker estimates the energy transition expands the opportunity to $7.3bn by 2035, implying a compound growth rate of 9.6%, with Energy One currently holding around 2% market share.
Bell Potter cites Global Market Insights data suggesting the European energy software market is forecast to grow more than 7.2% through to 2032. Energy One’s EU and UK operations now contribute around 57% of group revenue, with market share approaching 15% following acquisitions.
While EBITDA margins of 27% trail the more mature Australian business at 42%, management expects margin convergence over time as scale increases.
Regarding the product mix and revenue drivers, Canaccord breaks Energy One’s revenue into five core segments: energy trading and risk management (ERTM) contributes 35% of revenue across Energy One Trading (12%), SimEnergy (5%) and enTrader (18%).
Physical trading, nomination and scheduling account for 45% of revenue, of which 10% stems from EnergyOffer and pypIT, and 35% from the UK and EU operational platforms eZ-Ops, egssPort Gas and envoy.
Analytics, automation and niche software make up 7% and Services contribute around 13% of group revenue.
While the breadth of offerings can appear complex, brokers argue the integrated approach underpins Energy One’s value proposition as a single provider across multiple market functions.
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