Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Main market new issue - eaga plc (The City will love it, some tax payers may be less impressed)

I recently met with the management of eaga plc (no that isn’t a spelling mistake, it’s one of those lower case names that always strike me as strange-are there any really serious businesses with lower case names?) which is seeking to float on the full list with an indicated valuation range of £373m-£423m.

Brewin Dolphin is the house broker so name spelling notwithstanding I have given the offer some respect.

eaga was established in 1990 to tackle fuel poverty amongst vulnerable households and is the UK’s leading provider of residential energy efficiency solutions. From its humble beginnings of helping the poor through administering government handouts, its key management will now become multi-millionaires. That’s not a bad result for the eaga staff but probably less appealing to those UK tax payers who have funded the handouts and aren’t eaga employees.

I’m quite frankly staggered that a business with a market cap of c£400m can be created in such short time from simply servicing government initiatives. All credit to the management to have seized upon the opportunity and ran with it, but it’s a rather bizarre turn of events and a sign of the times in the UK. I do realise they aren’t the only ones benefiting in this way.

It almost makes the investment business appear moral!

A classic business model for our times; a group that recognised the potential in government initiatives at an early stage and has made the most of it. It clearly wants to diversify and become less dependent on its original paymasters and in the short term (at least to 2010) there doesn’t appear to be much in its way. Just think of all those energy efficient light bulbs ‘fuel poor’ households will be acquiring through eaga!

The suggested valuation (for the short term at least) looks very reasonable relative to peer group but these ‘relative’ valuation conclusions are sure to hit the buffers some day soon and the sector looks pricey.

The issue looks like it’s got great institutional support but I do question the morality of it all and that’s really saying something coming from an investment boy!

The term social justice has been bandied about by management. The social justice in question appears to lack consistency and I’m still not sure about that lower case name!

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