Glossary:

1.    Introduction – Good Energy

Good energy is a vertically integrated power generation and supply company which is listed on London Stock Exchange. Good Energy started its operations in 1999 and after 20 years of successful journey, it has more than 1400 independent power generators, producing a total of 54.5MWs of electricity, which use only renewable sources likewind, solar, hydro and bio-generation technology to generate 100% renewable electricity. Currently the fuel mix of Good Energy constitutes of 57% from wind, 20% from bio-generation, 18% from solar, and 5% from hydro. (Good Energy Group PLC, 2018)

Core Values:

With technology, people and partnerships as its core values, Good Energy aims to excel in the field of clean energy.

Good Energy believes that the usage of technological sources to generate clean and renewable energy is the future of global power industry. GE considers its leadership and the people as the core element of its success and aims to continue investing in its human resource. GE’s final core value encompasses the arena of partnerships as GE believes that the future of power industry relies on the effectiveness of partnerships among the stake holders of generators, suppliers and the technological enterprises. (Good Energy Group PLC, 2018)

Business Model:

Good Energy is a vertically integrated power generation company. From generation of electricity to its supply and applicable services, GE has a well control over its value chain. Good Energy’s integrated value chain also allows it to interact, connect and engage with its customers and clients directly. (Good Energy Group PLC, 2018)

Strategic Overview – Electricity Sector:

2018 was a very important and crucial year for electricity sector. The industry became more competitive with shifting dynamics, introduction of new regulations, continued development, and inception of latest technological advances. All of these factors impacted the industry where Good Energy operates.
The local market witnessed one of the most important and prominent regulatory changes in 2018. From January 2019, prices for consumer gas and electricity, supplied through various tariffs, have been regulated and capped at a price set by the energy regulator, OFGEM. The period of first capped prices would be from 1st January 2019 to 31st March 2019. A further price hike of 10% has been already implemented by OFGEM, effective by 1st April 2019. The regulator, OFGEM, will review and revise the price cap at every six month intervals. (Good Energy Group PLC, 2018)

Table 1

Table 2

Table 3

Financial Highlights – Good Energy:

Good Energy has performed well in increasing its revenue in last six years. The total revenue of GE has grown at a CAGR of 23.68% during the tenure from 2013 to 2018. However, GE has significantly struggled in controlling its cost of sales and maintaining its net income. Cost of sales since 2013 to 2018, grew at a much higher CAGR than that of revenue; that is at a CAGR of 25.49% which shows that the business has been facing tough challenges on cost side. Moreover, the GE has not been able to transfer the increment in the revenue over the period to the net income. The net income during the tenure faced a decline at CAGR of -21.37%.(Good Energy Group PLC, 2018)

Good Energy has shown a keen approach towards constantly increasing its asset base. Since 2013, Good Energy has grown its assets by average yearly rate of 17%. This trend shows the positive intend of the company. However, in order to fund this growth, Good Energy has relied on raising new debts, on a yearly basis, Good Energy’s long term debt has increased by an average rate of 22% since 2013 till 2018. Constant increment in debt has played its negative role in shrinking the overall net income as with increasing debt comes higher finance costs.

Good Energy’s non-current assets mainly include lease hold lands, electricity generation assets and other equipment. (Good Energy Group PLC, 2018)

 Critical Analysis:

 Being an electricity generating and supplying company, it is really crucial that you keep updating and expanding your electricity generating assets in order to keep yourself in the competition. Good Energy has not only been successful in maintaining its electricity generating assets base but also it has reinvested and expanded its asset base. Last considerable investment in electricity generation assets has been witnessed in 2015, where Good Energy increased the electricity generating assets from £35 million to £65 million. During the period from 2013 to 2015, Good Energy increased its electricity generating assets at CAGR of 135.82%. (Good Energy Group PLC, 2018)

 With time, the trade and bill receivables of Good Energy has increased at a drastic rate, which can be quiet devastating for the effective management of liquidity of the company. Moreover, further intensifying the situation, the provisions against the trade and bill receivables, haven’t kept the pace with the rapidly increasing receivables.(Good Energy Group PLC, 2018)

Receivables as a percent of total revenue also has increased from being 13% in 2013 to 27% in 2018 which represents the problem that Good Energy has either supplying more electricity on receivable basis or is not effectively collecting its receivables. In any scenario, this might presents issues to Good Company like liquidity crunches which is quiet important to manage well in electricity generating and supplying businesses. (Good Energy Group PLC, 2018)

On the other hand, the company’s management has been reluctant in increasing the provisions against the increasing trade and bill receivables.

On a positive side, Good Energy is a good stock to keep for investors who wants constant and stable dividends. Good Energy has been paying a constant amount of dividends every year since 2013 irrespective of its profitability as in 2015, even when GE didn’t make any profit, it still paid dividends quiet similar to that of previous years. In 2013, the dividend payout ratio of Good Energy was 14%, however in 2018, this metric was 28%, almost doubled.

Ratio Analysis – Peer Group:

To analyze the performance of Good Energy over the period from 2013 to 2018, we will dig deep into its financials and compare its ratios with those of its comparable peers.

Profitability Ratios:

• Gross Profit Margin Ratio:

While industry average of Gross Profit Margin has witnessed ups and downs since 2013, Good Energy’s GPM ratio has been more or less constant which shows that GE has somewhat control of its input costs. In 2013, the industrial average of GPM was above that of GE, however, with passing years, GE maintained its margin quiet effectively whereas the margin of industry deteriorated with increasing fluctuations in raw material costs. Fluctuations in the gross profit margin in attributed to variations in commodity prices. (Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

• Operating Profit Margin:

 Operating Profit Margin shows how effectively the company has managed its operating expenses with respect to its operating profits. Higher the margin, higher the effectiveness. Whereas, the industrial average witnessed a massive decline in the OPM, Good Energy has very effectively managed and maintained its OPM which shows that GE has kept costs like administrative expenses in control. (Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

• Net Profit Margin:

The Net Profit Margin comparison has also followed the same trend as of GPM and OPM. Industrial average deteriorated with time but GE has at least been successful in maintaining its profit margins. (Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

Liquidity Ratios:

• Current Ratio:

 Current Ratio tells us about how effectively a company manages its current assets and current liabilities. A company should have enough current assets to cover up its current liabilities at any given time of the year. Usually, anything below than 1 in CR is not acceptable. Current ratio of Good Energy has been on a decline since 2013 with going below than 1 in 2016. However, it recovered slightly from being 0.9 in 2016 to 1.40 in 2018. (Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

• Debt to Equity Ratio:

 Good Energy’s balance sheet has more debt than the industry average. The debt level of GE has significantly increased since 2013, the debt to equity ratio increased from 2.3 in 2013 to 5.3 in 2018. Higher debt level has contributed to increase the financial cost which has shrunk the net profit. The finance cost of Good Energy has increased at CAGR of 43.41% during the tenure from 2013 to 2018.(Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

• Interest Coverage Ratio:

Interest coverage ratio tells us about the company’s ability to cover and fulfill its interest payment liabilities. Anything below 1 is a sign of severe distress; however, ideally the number should be above 5. Interest coverage ratio of Good Energy also has declined since 2013, showing that the either the EBIT has declined drastically or the finance cost has increased. Good Energy has invested heavily in its electricity generating assets in 2013 and 2014 after taking new debts which resulted in higher D/E ratio and lower interest coverage metric. We expect that this ratio will improve in coming years as expansionary projects will start generating electricity which will help increasing the EBIT and with time, the finance cost will also decrease. (Good Energy Group PLC, 2018)(YU Group PLC, 2018)(AMP PLC, 2018)(OPG , 2018)(Green and Smart Energy, 2018)

Other Important Ratios:

Table 4

(Anon., 2019)

Non-Financial Ratios:

Table 5

Good energy has continued the good work of enlarging its customer base of both, domestic and business customers. However, the growth has slowed down in 2018 as compared to that in 2017. Customer meter growth shows the growth in meters supplied to domestic customers whereas business customer volume growth presents the number for meters sold to business customers. NPS is a measurement of how likely is that a customer of Good energy would recommend the services to someone else. (Good Energy Group PLC, 2018)

Corporate Governance:

Corporate governance means keeping in mind the interests of all stakeholders while making crucial decisions. A corporation has several stakeholders and their interests may vary from one another; the goal of a corporation is to effectively manage the relationships among all the stakeholders and make the best possible choices for the long term betterment of each stakeholder.

Good Energy has taken several steps which portrays its effective management of “Corporate Governance”

GE sources all of its electricity from certified and proved renewables sources of energy like solar power, wind power, hydroelectric power and biofuels. All of the Good Energy’s suppliers are based in United Kingdom and Green Energy pledges that it will always deal with UK suppliers only. Gas used by GE is carbon neutral where 6% of the total gas comes from bio-methane and the rest through the Green Gas Certification program. The projects of GE delivers wider benefits to the local communities, including helping out local poverty and empowering local women.

Furthermore, GE shares all the important information to its shareholders in a timely manner. GE’s board of directors include professionals who look after key decision makings and manage enterprise risk.  (Good Energy Group PLC, 2018)

Aligning to the goals of effective corporate governance has become so essential in this era of social media where any mishap can damage the reputation of the organization in the longer run.

Strategies to become a FTSE 100 Company:

Following are few strategies, the management of Good Energy can adapt to become a FTSE 100 company.

• Invest in research and development. The energy sector is very rapidly evolving and to become competitive and remain relevant, GE should increase its investments in R&D to find better, cheaper, and cleaner ways of generating electricity.
• Envisage future. Good Energy should start planning for future beforehand. In future data will empower homesand businesses to control and store electricity, GE should prepare itself for future to take a competitive edge.
• Invest in human resource. Great companies are made and run by great people. In order to be a FTSE 100 Company, GE should bring industry best practitioners and experts in to its top management team.
• Build better and sustainable partnerships. In an era full of uncertainties and variations, to grow and thrive, GE should build better relationships with its suppliers and distributors.
• Good energy should be well prepared to any changes in regulations and compliance of government or regulatory organizations. As the electricity and power sector is very exposed and vulnerable to such changes, any drastic change in the policies can harm the operations and profits of Good Energy. Hence the management should be well prepared for such changes.

Caveats and Methodology:

• In order to make the numbers comparable, financial results of 2018 of all companies have been used in the analysis presented in this report as complete results of 2019 have been not published for few of the peer companies.
• Peer group includes OPG Power Ventures, Aggregated Micro Power Holdings PLC, YU Group PLC, and GREEN & SMART HOLDINGS plc
• In order to normalize the results from all peers, certain elements have been neglected like impairment provisions, other income, non-recurring items, gain on sale of assets Etc.
• Few of the peer companies were in losses in few years.
• Peers companies might vary slightly with the subject company in terms of operational size, geography and operations.

Annexes:

Table 6

Table 7

Table 8

Table 9

Table 10

Table 11

Table 12

Table 13

Table 14

Table 15

Bibliography

AMP PLC, 2018. Annual Report, s.l.: s.n.

Anon., 2019. Investing.com. [Online]
Available at: https://www.investing.com/equities/good-energy-group
[Accessed 31 december 2019].

Good Energy Group PLC, 2018. Annual Report, s.l.: s.n.

Green and Smart Energy, 2018. Annual Report, s.l.: s.n.

OPG , 2018. Annual Report, s.l.: s.n.

YU Group PLC, 2018. Annual Report, s.l.: s.n.