Ann: Results of Annual General Meeting, page-27

Ov I am not sure how long you have held this stock. I think for me its early 2012 - I followed the research of Lilac on another stock which led to this one. Firstly to person that said it was at these levels a year ago - not true it was around $180 at the low according to my data.

The one thing I learned from the early days of buying was that this stock had limited audience. I tried to do the classic EPS and FA. What I could not get was how to unpack the financial statements to make sure that I could adjust the numbers to make a real set of numbers taking out what I see as an illogical accounting adjustment. I could not easily do it so I have an adjusted underlying profit model.

This is as I see it:

The company for its size raised too much money in anticipation of the NSW bid for Electricity generation assets. Those new shareholders have been on a hiding to nothing for a few years. If memory serves in mid 2013 and a few months later they raised a total $135 million @ $2.40 and $2.53 per share. The latter to purchase the rest of the shareholders out of Oakley so that the unencumbered asset could be used in a bid for the NSW assets. Given the size of ERM at that time it was huge and got a lot of new shareholders on board. They have never really seen a profit - they bought cheaply but by the time the dust had settled on the bid the price had dropped back.

Prior to this the audience was small and the daily price movements at time shocking because of liquidity. Some of us used to purchase the drop and accumulate. Now this was a much bigger volume and it seemed far more volatile.

I have spoken to my brokers and all of them wont invest in Electricity - they have warned me off AGL and Origin. Luckily I agreed their commentary has been that electricity usage is declining who invests in a declining market. The first thing to go in that is the price then the volume keeps declining and in the end you are at marginal costing levels. Lately its been the oil price in regard to those two.

I ignored them - where can you invest in a business that has such high consumer appeal that it is streets ahead of its opposition and is growing each year. There is no doubt the market place is tough on margin and right now being the 2nd largest in C&I is probably not helping as those are the big base load contracts.

The larger issue is audience to date over the past 4 trading days 6.5 million shares have traded that's 2.6% of the issued share capital. If you compare it to CAJ which also had a negative announcement they have traded around 20% of the share capital and dropped around 32% of share price. We dropped the same but thats only on around 2.6% of the shares in issue.

I have done every analysis that is logical - really the only thing that makes sense to me is that you or others are correct that this has over the few years become a total dividend play.

The first bad news was that the franking credits were used up and now we are down to 33% franking - In effect that is a reduction of dividend. Then you have this latest announcement - I am not even sure what it is: The range that has been left after the AGM is really with the 2015 result at the top end but a much lower bottom end. However no normalized profit forecast has been given to my knowledge nor can we understand what its EPS is projected at on a normalized basis.

Income investors are therefore left with the following:

The dividend is said to be going to be paid. The franking is dropping and may I suppose logically disappear if the tax payable disappears. Those that are looking for growth are disillusioned as it would be better not to pay dividends unless fully franked but rather pay down debt. Those looking for secure dividends are already disappointed as the franking is down to 33% - the up-scaled dividend including franking impact has dropped from 17c to 13.69c.

Add to that a "profit warning" if it is that - They want out as grossed up dividend is or was now only 6.22% of the $2.20 share price. They can go to a GOZ and get 6.45% on a REIT.

You have now left ERM vulnerable on both counts - They admit greater competition and lowering margins in a declining market with excess capacity. All of these compared to other dividend payers that have a stable outlook.

This is the problem even if you wanted to sell the audience have gone home and even then given its complexity they are not going to be there in numbers to purchase the equity. At some point it becomes too cheap - In y opinion - its already there. Assuming a 12c dividend no franking on $1.45 - then its yield is 8.27% - You cannot sell at $2.20 to replace the dividend elsewhere so its now a panic situation but more importantly there is no understanding of what the company was putting out at the AGM in my opinion.

My position - I have increased my holdings but have not got that much room as we have a fair few already. The price is irrelevant to me and the logic is that the SME and single site business will drive future profits and will push up the margin significantly. They may even become a target for a producer as they can lock in the volumes.

The USA business at this stage is a distraction - It can and may well become the star but to suggest there are things that will cause ERM to fail because of it is down ramping in the extreme in my opinion. Its just too small at this stage.

ERM is well run and its volumes are increasing which means others are declining - The difficulty is that we have to get above 68,000 SME and single sites n my opinion to get to stabilize the margin and that is 18 months away.

Is any of this reason to sell - No. However I do believe that management should be talking more clearly to shareholders so that we can understand the impact more easily

I dont believe you will find its heavy shorting just panic sellers.