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Summary Shares have appreciated substantially since July. Total revenue grew 18%, with the more profitable consumer segment growing 20%. The U.K. operation and the solar program will pave the way for future growth. After a poor performance in 2014 and trading flat in H1 2015, Just Energy (NYSE: JE ) is finally back on track. Since my last analysis on the company in July, shares have appreciated by 30% from $5.23 to $6.82 today. Let’s see how the company performed in Q2 (year end is in March). The company continued to deliver top-line growth. Increasing sales by a whopping 18% quarter on quarter from C$918 million to C$1.1 billion. This doesn’t surprise me one bit. With the exception of FY 2012, the company has always delivered consistent growth from year to year. (see below). Many consumers are aware of Just Energy’s incessant marketing, and the financials reflect that. Sales can be broken down into consumer sales and commercial sales. Quarter on quarter, consumer sales have grown by 20% and commercial sales by 16%. The growth from consumer sales are much more valuable because traditionally commercial customers simply paid less. In Q2, gross margin for the consumer division was 22%. In contrast, the commercial division only yielded 9%. After deducting various operating expenses, the consumer division is more than twice as profitable as the commercial division (C$27 million of operating profit vs. C$10 million of operating profit). We can also examine growth from by looking at how much money the company charges its customers, which would reflect more of an “organic growth” as opposed to revenue generated by acquiring new customers. For the consumer segment, margin per customer rose 24% from C$176/RCE in Q2 2015 to C$219/RCE in Q2 2016. Evidently, the company should be able to achieve sales growth even if customer acquisition slows. Despite these great results, the company still reported a loss. The main culprit is derivative losses. During the quarter, the company made a fair value adjustment of C$117 million due to declining commodity prices (i.e. the company would have to purchase commodities at higher prices than the market if contracts are settled now). These losses will eventually go away as the contracts expire (i.e. not recurring). Outlook I believe that the future is bright for Just Energy. The company is still rather small in the U.K. and has plenty of run way to expand. Just two quarters ago, U.K. contributed 202,000 RCEs. In Q3, this number has grown 36% to 275,000 RCEs. In addition, the company is also exploring non-traditional initiatives such as the partnership with Clean Power Finance to enter the residential solar market, which is all the rage right now. While the exact impact on the bottom line is not clear yet as results are still preliminary, I believe that this program will be a smash hit. Because the company is marketing to existing customers, I believe that the adoption rate should be fairly high. This means that the solar program should be able to generate incremental profit without the company spending too much money (as opposed to a new customer acquisition). Scalper1 News
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