Energy One Limited (EOL) - Margin thesis playing out

Energy One provides software products, outsourced operations, and advisory services to wholesale energy, environmental, and carbon trading markets in Australasia and Europe. The company also provides power plant management system that manages daily market communication, intraday and day-ahead trading, and nominations for a power plant; energy advisory services; demand and weather linked risk management solutions; generation services; outsourced operations services; plat outage insurance; and managed services. Energy One was incorporated in 1996 and is based in North Sydney.

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Energy One delivered a solid first-half FY26 result, broadly in line with or above expectations. Net recurring revenue (NRR) growth of 111%, well above guidance of 106-108%, shows a strong ability to upsell and cross-sell. Importantly, we see our margin story starting to play out as European margins expand 728 basis points (bp) on a year ago, ahead of our expectations. Trading at 14.1x forecast 2027 operating earnings (EBITDA) versus its Australian-listed technology peers at 18.1x, we view the valuation as attractive for a business compounding at this rate. We retain our Buy recommendation with a target price of $21.58.

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A key pillar of our investment case has been margin expansion potential as Europe margins converge with the more mature Australian and the latest result confirmed this, but EBITDA margins in its Australian business also expanded by200bp on a year.

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We incorporate a minor (~1%) downgrade to revenue in FY26 due to lower-than-anticipated installations in the first half but have upgraded our net profit estimates due to stronger margins in both regions. Energy One remains a profitable, free-cashflow-generative, and highly defensible business growing its top line at more than 20 per annum. In addition, the stock offers defensive appeal in the face of threats to the software sector from AI. We reiterate our Buy recommendation.

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