29 June 2014

Summary company financials (m)

Year end December FY2011 FY2012 FY2013 FY2014E
Price 2.32 Revenue 21.6 28.2 40.4 51.7
Market cap (m) 31.5 7.7% 30.7% 43.3% 28.0%
Enterprise value (m) 37.0 EBITDA 2.4 2.7 5.0 5.4
11.3% 9.4% 12.4% 10.4%
Free float 79.7% Net income 0.9 1.2 2.7 2.6
Net debt (cash) 7.3 -0.3 7.4 5.5
Shares outstanding 7.1 9.4 13.6 13.6
EV/Sales 0.60 0.51 0.95 0.71
EV/EBITDA 5.3 5.4 7.7 6.9
PE 6.6 12.4 11.7 12.1
Good Energy Group PLC
Revenue growth
EBITDA margin
Juliet Davenport, CEO Good Energy, July 2011:
"Starting an energy company really came out of frustration with not being able to influence or change any of those people who dictated the
framework of that energy market. And feeling that the only way I could do it was by doing it myself, and going directly to consumers and
people who may actually want to take steps faster than we were seeing Government at that point. My vision for the future for both Good
Energy and the UK energy market is really concerned about two things: one is climate change, and the other is the security of where we buy
our power from and provenance of our power. And really, I suppose, what I am looking to do with Good Energy is create a blueprint that we
can use for the UK to disrupt the existing system from large generators, and large suppliers, to a wholly different way of doing things."

Good Energy Group Plc is a vertically integrated, renewable energy utility, supplying renewable electricity to approximately 40,000 domestic
and commercial customers, gas to approximately 15,000 domestic customers and supporting a growing community of approximately 60,000
independent green power generators across the UK. Good Energy also has a renewable electricity generation business which includes 19MW
of wind power assets and 5MW of solar power assets. The group has targeted for 50% of its electricity sold to be generated by its own assets
by 2016 and has a 200MW development pipeline including wind, solar and tidal assets.

Good Energy's equity trades at 12.1x FY2014 earnings and 6.9x EV/EBITDA. The valuation appears undemanding in terms of Good Energy's
growth profile - the company grew its revenues by 43% and earnings by 125% in the 12 months to December 2013. Longer term - over the
last 10 years - Good Energy has grown revenues per share at an average annual rate of 17.6% and EBITDA per share by 24.2%. Good Energy's
CEO and founder Juliet Davenport owns 3.4% of the equity (senior management own 20.3% combined), and Juliet has been active in the
energy sector throughout her career after studying Atmospheric Physics at Oxford. Juliet has combined shareholder value creation at Good
Energy with an active presence in the public debate in terms of the UK's energy policy.

Good Energy seeks to be a catalyst for change in the relatively underdeveloped UK renewable energy market. Currently, less than 5% of the
UK's energy needs comes from renewable sources. This is despite the UK having a number of structural advantages from the perspective of
renewable energy generation. The UK is the windiest country in Europe, and could support a significantly increased wind power assets
building on the success of the London Array, currently the world's largest wind farm. Also, the continental shelf around Britain and Ireland
offers the second highest tides in the world as the Atlantic Ocean pushes waves toward the shallow waters off the British coast. Currently,
however, Britain has limited tidal projects in operation (although several are proposed including the 320MW Tidal Lagoon Swansea Bay, of
which Good Energy is a shareholder).

The logic for the UK increasing investment in renewable energy projects not only comes from environmental responsibility but also from the
logic for increased self-sufficiency. The UK's overall energy production has declined every year since 2000, and in each of the last two years
the decline has exceeded 10%. The UK now imports more than 43% of its total energy, with Russia being one of its largest suppliers.
Renewable energy in the UK is one of the few segments where domestic energy production is showing growth.

The challenge, however, is not only increasing the UK's renewable energy production, but increasing it at scale and cost effectively. The UK
government has set a target of 30% of electricity to come from renewable sources by 2020. Already, however, the economics are in favour of
the private sector increasing investment in these projects. The cost of renewable projects - particularly tidal and wind - comes down
significantly with the size of the project. If scaled, the largest of these projects have a lower operating cost than nuclear, as well as a
significantly longer operating life.

Good Energy was founded in May 2000 with the goal of providing consumers 100% renewable energy from a company committed to growing
renewable energy generation in the UK. The company was the first supplier to offer purely renewable energy to UK households. Juliet
Davenport became CEO in 2002 and made its first share offering to 5,000 of its customers - allowing the cmopany to buy its first wind farm
and begin its path to electricity generation rather than solely electricity supply. Raising capital from its customers - both equity and debt
finance - is a strategy Good Energy has continued to take advantage of in addition to other more traditional sources of capital raising.

By 2007, the group had increased customer numbers to 25,000 (26% per annum growth rate from 2002), achieved despite Good Energy's
historically selling energy to customers at a 10% premium to the average market price, taking on predominantly early adopter type
consumers who were prepared to pay the premium for the commitment to a green energy utility. In 2008, as a result of the global downturn,
the customer elasticity of price to switch to Good Energy changed, resulting in customers being less prepared to pay a premium. Good Energy
responded by updating its stategy, further investing in its own production to lower average cost of power purchase and investing in IT and
forecasting systems. The company's energy pricing strategy moved to match other electricity providers, and customer growth accelerated, to
114,000 customers by YE2013 (29% per annum growth rate from 2007). Group EBIT margins also expanded from 5.0% in 2007 to 9.5% in by
YE2013.

As well as supplying electricity, Good Energy is a developer of renewable energy sites. The company has continued in 2013 its programme of
investment in its project pipeline towards delivering a total generation portfolio of 200MW. In the second half of 2013 alone, the company
received consent to build 100MW of solar parks. The group's construction of its own generation assets works to drive down power purchase
investment in its project pipeline towards delivering a total generation portfolio of 200MW. In the second half of 2013 alone, the company
received consent to build 100MW of solar parks. The group's construction of its own generation assets works to drive down power purchase
costs. In Cornwall, where Good Energy operates the "Big Field" wind farm, local residents are offered energy prices 20% cheaper than
standard tariffs and beating the prices of all other UK electricity suppliers.

The Group sources the electricity it does not generate itself from other renewable suppliers. As part of this, the Group has continued to
diversify its supply base and the number of generators from whom it contracts to purchase renewable electricity has risen to more than 640
sites across the UK. The Group's vertical integration - suppling direct to consumers at retail prices rather than selling energy wholesale - as
well as diversifying income streams also allows a higher realised price to be achieved from electricity generated leading to higher IRRs on
prospective and existing generation assets.

From a financial perspective, Good Energy's growth is also supported by innovative funding activities. Historically, Good Energy has raised
both equity and bond finance from its customer base as well as from traditional market sources. In 2013, Good Energy raised a 15m bond,
and 80% of the applications came from the group's customers. Whilst consumer distrust of the larger, established energy companies
continues, Good Energy appears to be benefit from the opposite.

The identification of generation projects at Good Energy is led by Mark Shorrocks, who it should be noted is the husband of Juliet Davenport.
Mark also has significant renewable energy activities outside of Good Energy and has been responsible for the development of 67 MW in the
UK in wind and solar and became acting Director of Generation at Good Energy in 2012 to lead and build the Good Energy development
team. Mark is independently spearheading the Tidal Lagoon Swansea Bay project, for which Good Energy has also become a shareholder. The
relationship between Mark and Juliet is disclosed in the company accounts and whilst we do not neccessarily see reason for concern, it may
be an area that investors probe further in discussions with management. Mark is paid on a commission basis in terms of the development
sites he successfully introduces to Good Energy. He is not, however, a director of the company, so his remuneration is disclosed voluntarily
rather than by obligation.

In summary, Good Energy is a high growth, potentially disruptive energy company both matching and in some cases undercutting the "big
six" on pricing. Good Energy supplies 100% renewable energy to its customers, and is vertically integrated with a target to generate 50% of its
own supply by 2016. The company has achieved outsize growth, with 43% sales growth over the last 12 months and with average sales
growth per share of 17.6% and average EBITDA growth per share of 24.2% over the last 10 years. The UK is an attractive market for Good
Energy's strategy to be implemented, because the UK has structural advantages in wind and tide in terms of renewable energy generation.
Good Energy has an undemanding valuation of 12.1x PE and 6.9x EV/EBITDA.

But why review this name? With a 31m market capitalisation it would be diffcult for most institutional funds to acquire a reasonable stake?
Well, yes, but Good Energy appears to be a company over-achieving relative to its scale. Some of its energy development projects the
company has sold on, rather than continued to operate, because it does not want to overstretch its balance sheet. Good Energy, therefore,
may be considered to be approached to add additional funding. This way an investor may end up with an outsize stake and in the process
further accelerate Good Energy's already impressive growth.