Ann: CEO Appointment , page-15

Energy Action Ltd (EAX.ASX; $3.98/sh; Mkt Cap $102m) – AGM reaffirms profit guidance of 10-15% NPAT growth for FY14. BUY PT $5.50/sh.

•Yesterday we attended the EAX AGM where management reiterated guidance for NPAT growth for FY14 between 10-15%, and like the strong FY13 result, earnings will be weighted to 2H. It was particularly encouraging to hear that average contract terms have lifted back to ~30months (were as low as 22 months in 1HFY13) in line with the long-term average since the implementation of ‘carbon exclusive’ auctions and contracts are now being booked out to 2017.

•The newly appointed CEO Scott Wooldridge, who has taken over the reins from Valerie Duncan, was introduced at the AGM. Scott has extensive industry experience with over 15 years senior executive positions across the electrical and IT industries most recently with Schneider Electrics Australia and has the requisite credentials and experience to guide EAX through its next stage of growth.

•The strategy for FY14 forward is centred on aggressively aiming to capture ~90% of the market that remains uncontracted beyond 2015 providing a huge organic growth opportunity. We believe the investment in sales and marketing in FY14 will translate in growth in further years as the margin stabilise and NPAT margins return to the low 20% range. Strong cash levels and EBITDA margins will comfortably support the increase in staff expenses forecast for FY14. T

•EAX is a standout in the small cap industrial space providing a healthy growth profile, zero debt, high cash generation, visibility of forward earnings and operational leverage on the existing cost. We forecast FY14 revenue $28.1m (YoY 28%), NPAT $5.6m (YoY 18%) providing a healthy 3.3% dividend yield. Based on our conceptual model EAX trades at a FY14 PER of 14.4x and a low FY15 PER of 11.1x.

•We reiterate our BUY recommendation and PT $5.50/sh.
http://www.fostock.com.au/announcements/energy-action-ltd-eax-asx