CRASH! Here’s why the ERM Power Ltd share price crashed 22% today

ERM Power Ltd (ASX:EPW) shares have come under heavy selling pressure today.

| More on:
oil prices crash

It’s been a bad day for shareholders of ERM Power Ltd (ASX: EPW) who have watched their shares crash more than 22% to just $1.14. That compares to a 1.3% rise for the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO).

The shares are currently trading at a 53% discount to their 52-week high achieved in June 2015, with a similarly sharp fall endured in October last year.

ERM Power sells electricity to small and big businesses in Australia and the United States, while it also generates a sizeable portion of its revenue from gas-fired power generation assets and delivery of power generation solutions.

In an announcement from the group today, ERM Power confirmed its guidance for EBITDAF for financial year 2016 (FY16), although it did note weakness at its Oakey Power Station. It said the station will underperform expectations of $16 million EBITDAF for the year, although that would be offset by the performances of the Australian and United States retailing businesses.

Note: EBITDAF = earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains and losses.

However, it appears management do not expect the recent issues to be limited to FY16. It also anticipates load growth and margin pressure in its Australian electricity market due to “significant retail competition”, with a growth rate below historic levels.

It also said that the Australian retail business is approaching its natural market share ceiling, suggesting that growth will continue to moderate over the coming years, with lower margins also potentially a lasting effect.

Meanwhile, 2017 EBITDA for Oakley Power Station is also forecast in the range of $14 million to $16 million, which it said includes an allowance for a scheduled maintenance outage.

Arguably, today’s selloff has been overdone and may present a reasonable opportunity for long-term investors to consider buying. In saying that, investors should also remain wary of the conditions within the industry itself and consider how ERM Power will deal with that in the long run.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »