MIDAS SHARE TIPS: Farmers switch to renewables in a boost to Good Energy

Good Energy shares have seesawed over the past year, hitting £3.76 last November and now trading at just £2.64. This seems unjust. 

The company is well managed, growing fast and financially strong. A long-term buy. Farming can be a precarious business. 

Dairy farm incomes soared on average by more than 60 per cent to £230,000 in the year to March 2023. For the year to this March, they plummeted to around £50,000. 

Crop farmers are also expected to see savage cuts to their livelihoods, with average incomes sinking to little more than £30,000 for cereal specialists.

Prices yo-yo, yields are unpredictable and costs vary wildly, particularly in recent years. No surprise then that farmers fret about making ends meet. A growing number are trying to boost revenues by diversifying into other areas. The supply of green energy is high on the list.

Some install a handful of wind turbines on their fields. Others are more ambitious, setting up anaerobic digesters which turn rotting crops and slurry into methane and convert the gas into electricity.

The system is highly effective, recycling waste matter, turning a toxic gas into something useful and helping farmers to make cash on the side. Good Energy Group is one of their biggest customers.

Founded 25 years ago, Good Energy was a pioneer in the renewables market, generating electricity from its own wind and solar farms, sourcing similar power from individuals and supplying super-green electricity to eco-conscious consumers.

In 2021, founder Juliet Davenport stepped down and was replaced by Nigel Pocklington, fresh from a board position at Moneysupermarket. Since then, Pocklington has fended off a bid from rival Ecotricity, steered Good Energy through the energy crisis and repositioned the firm.

The wind and solar divisions were sold off, new businessess have been acquired and today Good Energy has a broad mix of operations, sourcing and supplying electricity and delivering related services, too. 

The group has contracts with around 2,500 small-scale suppliers, from farmers to factories with solar panels that generate more energy than they need. These collectively produce about 500 gigawatts of power a year – a small but growing percentage of the UK’s electricity needs. 

Good Energy delivers this power to about 100,000 environmentally conscious customers, who are prepared to pay a little bit more for totally green goods. 

Some are affluent homeowners, but most are companies looking to boost eco-credentials, such as accountants PwC, whose offices are entirely supplied by Good Energy.

This side of the business is growing steadily, but Pocklington is keen to expand the services side, administering bills for households and firms with solar panels and installing these panels, along with heat pumps and storage batteries.

Last year the solar installation market was valued at almost £2 billion, as businesses and consumers reeled from soaring energy prices. Prices have come down since but forecasters still expect the solar panel market to exceed £4.5 billion by 2030.

Good Energy is well placed to benefit, as it is well known in its field and focuses on high quality after-care.

Customers are wide-ranging, from cost-conscious families to theme parks including Chessington World of Adventures and Thorpe Park. 

Good Energy has a 49 per cent stake in ZapMap, too, which shows electric car owners where they can charge their vehicles around the country. Covering 95 per cent of all charge points in the UK, the business dominates its market and recently expanded into continental Europe.

Pocklington is ambitious, hoping to take profits from £5.7 million last year to more than £10 million next and more than £15 million by 2027.

Dividends are forecast to rise too, with 3.8p expected for 2024, increasing to 5p over the next three years.

Good Energy has a strong balance sheet, with more than £30million on the books, allowing Pockington to invest and make selective acquisitions.

This month, one such deal was completed – Lincoln-based solar installation firm Amelio Solar for up to £6 million.

MIDAS VERDICT: Good Energy shares have seesawed over the past year, hitting £3.76 last November and now trading at just £2.64. This seems unjust. The company is well managed, growing fast and financially strong. A long-term buy.

Traded on: Aim Ticker: GOOD Contact: goodenergy.co.uk

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