Energy Developments Limited (asx Code: Ene)

Sydney Morning Herald

Wednesday June 29, 2005

Geoffrey Hill, Geoffrey Hill is an independent adviser who specialises in portfolio reviews for clients. Visit www.ghill.com.au

Price movement Investing often involves a leap of faith, with much of that faith placed in management. With the financial year ending, Energy Developments will post a profit after a loss last year. Next year looks to be more profitable still. Its share price is starting to reflect this and will creep steadily higher.

The share price slumped from its $14.12 record high in November 2000 to its $1.60 record low in July 2003. The reason for the decline was that the establishment of a new recycling technology to generate energy failed to deliver timely results.

Profile Energy Developments Limited is a renewable energy provider, with 61 power plants around the world. The current total capacity of its plants is 420 megawatts. The company provides services in three core areas of business: remote area power generation, landfill gas power generation and coal seam methane power generation. The company provides greenhouse gas emission reductions (carbon credits) equivalent to approximately 10 million tonnes a year of carbon dioxide. The plants are mainly in Australia (28), but the company also has operations in the US (9), France (10), Britain (9), Greece (1) and Taiwan (4).

Current details The company is on track to deliver a net profit of about $26 million to $29 million for the June financial year, a substantial turnaround from last year's $9 million loss. The forecasts for next year are about $36 million, but this could be revised upwards.

The company plans to establish two major power plants, in WA and NSW, that will increase its electricity generation capacity by 20 per cent. The NSW plant is being part-funded by the State Government through its Greenhouse Gas Abatement Program.

Sector With the price of oil continually rising, renewable and gas power generation is becoming more attractive.

Energy Developments (market capitalisation $630 million) is one of four alternative energy generators listed on the ASX. Pacific Hydro ($760 million) uses water and wind as power sources. Novera Energy ($82 million) uses landfill and wind. Geodynamics ($160 million) is attempting to generate geothermal energy. Pacific Hydro is currently under takeover threat, which will remove a significant part of this fledgling sector from the ASX.

Worth buying? Establishing power generation plants usually takes several years, something that tests both shareholders' appetite for risk and their nerves. Energy Developments has successfully survived and proved its expertise. Long-term investors should begin to accumulate this stock for growth and stronger dividends in a few years. Buy.

© 2005 Sydney Morning Herald

Back to News Index | Back to Home