Australian retail: 18.5 TWh at $3 margin, minus $23m opex =...

Australian retail: 18.5 TWh at $3 margin, minus $23m opex = $32.5m underlying

Would not be surprised to see the margin weighted toward the first half (declining margin) and on average slightly higher than guidance for the complete FY. Every ten cents of margin equates to an additional $1.85m underlying earnings.

US retail: 5 TWh at $8.25 margin minus $20m opex = $21.25m underlying

I've taken a midpoint of the $8-$8.50 margin. Improved inefficiencies as the business scales will drive margin growth. Opex will continue to decline with scale. Australian retail will always provide a foundation, however the margins and growth potential of the US business is astounding. Would not be at all surprised to see 10 TWh (target for 2018 = 8-11) at an $8.50 margin and opex of $3.50 per TWh in the 2018 FY - that situation would see an increase in underlying earnings of $28.75m.

Generation: Neerabup 25.1m and Oakey 15m = 40.1m underlying.

Neerabup has histroically been a constant, so I've kept 2016 earnings for this projection. Oakey was give na guidance of 14-16, so I've taken a midpoint.

Interest: A stab in the dark, but around $3m

Corporate and other: -18m (per AGM docs)

Underlying EBITDAF including interest income: $78.85m, a decrease of only 2.7m from FY 2016.

I'd expect minimal significant items due to acquisition and divestment expenses not recurring. For the exercise we'll say 2.85m, giving statutory EBTDAF of $76m (up 3.3m form 2016)

I'm expecting an increase in depreciation costs due to the US expansion (around 30m, up from 25.2m). I'm also expecting a slight increase in finance costs for the same reason (30.2m, up from 29.2m). I'm keeping share of associate profit (net of ta) the same, as this is marginal anyway - at 0.4m.

Excluding 'Net fair value gain on financial instruments' this gives us Profit before tax of 16.2m, down from 18.7m (FY 16) but up from -3.2m in 2015.

Funnily enough 2015 was seen as a great year, yet before 'Net fair value gain on financial instruments' we have a loss before tax. This is the problem with projecting results for this stock - it is hard to analyse what the net financial gain on the financial instruments will be. The company is required to value its forward electricity purchase contracts at market prices at each reporting date. Changes in values between reporting dates are recognised as unrealised gains or losses in the particular reporting period either in profit or loss or the hedge reserve. A conservative valuation sees a gain further don the track, and vice versa. We also have the variable of LGC's where we have kept an asset, but copped a penalty.

In a nutshell it all comes down to how the value of financial instruments has changed. As far as the business itself goes, the underlying earnings are looking like they have bottomed, with the US business to be a key driver going forward. I'm conscious of an analyst led backlash to the half yearly results due to the weighting toward the second half, but am confident we have the free cash flow to maintain the dividend -given operating cash flow per share will likely remain around 30cps.

In conclusion the business is facing margin related headwinds in the Australian business, but from this point forward those pressures will be more than offset by increased volumes in the high margin US space. Decreases in financial instrument gains may occur, but this should not be a year on year occurrence. We should now be back in a growth phase.

*All numbers are personal estimates and, where possible, are based off ERM announcements. They are simply estimates.