ERM Power ups its profits by 44%

ERM Power (ASX: EPW) is a $500 million company that operates as a specialist electricity retailer to big and small businesses as well as having interests in power generation and gas exploration businesses.

The company has reported a 34% increase in sales volumes, an electrifying 67% increase in revenue to $1.57 billion and growth in underlying net profit after tax (NPAT) excluding significant items of 44% to $20 million. The boost in profits has allowed the company to increase its full year dividend from 8.5 cents in 2012 to 10.5 cents in 2013.

ERM’s record level of sales volume has positioned the company as the fourth largest retailer in the National Electricity Market. The majority of this volume growth was achieved via the traditional large business market, however ERM has been progressively moving into the higher margin small business market which bodes well for the future profile of the company.

While retailing is still the company’s main game it continues to expanding its vertical integration through company-owned power stations which have continued to perform reliably and a gas processing facility which started producing gas during the 2013 financial year. An ASX announcement also shows that ERM recently took a 7% stake in oil exploration company Empire Oil & Gas (ASX: EGO).

Niche players in the electricity market such as ERM can well be worth investor attention. Australian Power & Gas (ASX: APK) recently received a takeover offer from AGL Energy (ASX: AGK) at a 33% premium. Energy Action (ASX: EAX) which runs an ‘electricity auction market’ to pair electricity and gas suppliers directly with customers, has seen its share price rally 56% in the past 12 months.

Foolish takeaway

Despite a capital raising earlier in the year, ERM’s balance sheet is not as robust as many investors would require. However with management providing guidance of underlying NPAT of between $21 million and $24 million in FY 2014 (this is after accounting for $7 million in developing new products, services and generation opportunities and excluding the Neerabup power station arbitration) and also forecasting growth of around 28% in electricity sales volume, this company could well deserve a place an investor’s watchlist.

Looking to power up the dividend you receive? Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.