MIDAS SHARE TIPS: Farmers switch to renewable energy sources as a boost for Good Energy

Good Energy shares have fluctuated over the past year, reaching £3.76 last November and now trading at just £2.64. This seems unfair.

The company is well managed, growing rapidly and financially strong. A purchase for the longer term. Farming can be a precarious endeavor.

Dairy farm incomes rose by more than 60 per cent on average to £230,000 in the year to March 2023. In the year to March 2023 they fell to around £50,000.

Arable farmers are also expected to make drastic cuts to their livelihoods, with the average income for grain specialists falling to just over £30,000.

Prices yo-yo, yields are unpredictable and costs vary enormously, especially in recent years. It’s no surprise that farmers are worried about making ends meet. A growing number are trying to increase income 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 that convert rotting crops and slurry into methane and converting the gas into electricity.

The system is very effective: it recycles waste, turns a toxic gas into something useful and helps farmers make money from it. Good Energy Group is one of their largest customers.

Founded 25 years ago, Good Energy was a pioneer in the renewable energy market. It generates electricity from its own wind and solar farms, sources similar energy from individuals and supplies super-green electricity to environmentally conscious consumers.

In 2021, founder Juliet Davenport stepped down and was replaced by Nigel Pocklington, fresh from a directorship at Moneysupermarket. Since then, Pocklington has fended off a bid from competitor Ecotricity, guided Good Energy through the energy crisis and repositioned the company.

The wind and solar energy divisions have been sold, new companies have been acquired and today Good Energy has a broad mix of activities, purchasing and supplying electricity as well as providing related services.

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 together produce around 500 gigawatts of power per year – a small but growing percentage of the UK’s electricity needs.

Good Energy supplies this electricity to approximately 100,000 environmentally conscious customers, who are willing to pay a little more for completely green goods. Some are affluent homeowners, but most are companies looking to boost their environmental credentials, such as accountants PwC, whose offices are fully supplied by Good Energy.

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

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

Good Energy is well positioned to benefit from this as it is well known in its field and focuses on high-quality aftercare.

Customers range widely from budget-conscious families to theme parks including Chessington World of Adventures and Thorpe Park. Good Energy also has a 49 percent stake in ZapMap, which shows electric car owners where they can charge their vehicles across the country. The company covers 95 percent of all charging points in Britain, dominates its market and has recently expanded into continental Europe.

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

Dividends are also expected to rise, with a projected value of 3.8p by 2024, rising to 5p over the next three years.

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

One such deal was completed this month: Lincoln-based solar installation company Amelio Solar for up to £6 million.

MIDAS VERDICT: Good Energy shares have fluctuated over the past year, reaching £3.76 last November and now trading at just £2.64. This seems unfair. The company is well managed, growing rapidly and financially strong. A purchase for the longer term.

Traded on: Goal ticker: GOOD Contact: goodenergy.nl